September newsletter: Creating the 'new' premium segment

Pricing is all about perception - money spent on influencing perception properly is money spent well, since it can be often recovered in a "justifiable price increase". The most common way of influencing perception is creating segments.

In the case of products, the most common way of doing this is creating 2 or 3 separate versions of your product or service, with increasing number of features. Say that a company has a low cost or entry version, a middle version, and a premium version of a product. Usually the middle version is a filler for people who need more features than the entry version, but will not pay the price for the premium version.

There are two things that happen with this scenario..

Customers who go for the lowest price entry level product are encouraged to pay a little bit more to get the mid level version.

Customers who go for the mid level version are encouraged to pay a little bit more to get the premium version.

But over time, companies sell the middle version at the same price as the entry level version and keep the premium version separate. The number of features in all three versions keeps increasing, with the newest feature in the premium version, and over time, it is passed on to the basic and intermediate version.

But there's a new trend in town - products with low number of features, easy to use intuitively and yet priced at a premium. Let's take a look at this phenomenon.

Creating the segment - the product management bit

There is a change in mindset involved: moving away from the 'product or service' as the focus to the 'customer interaction' as the focus. Previously, a product or service was a premium, if it "enabled" the customer to do more. Now the product or service is a premium, if it's "used" more and if it requires "greater interaction between the customer and the seller".

Designing the new premium segment requires understanding three things about the customer:

How does the customer use the product or service (the workflow). Focus only on mainstream users and not early adopters. If the context allows it, solicit feedback from women customers

Benchmark against competing services, and work to improve the service

What is the absolute minimum that the product or service should do, and how can I make it the easiest to use? (less is more)

What intangible attributes does a customer like and dislike? (branding issues, customer references)

Design an authentic story – that helps the customer identify your company and understand why your service or product is the right one for her. Make her feel special

While building a product or service

(Re)design the interface to be extremely simple, showing only details that the customer must see, and thinks are the most important. Hide everything else.

Build the product around this interface.

Set up a companion blog for this product and allow users to interact with each other, and learn how to use this product better.

Set up a website to personalize the customers experience. Include a lot of articles, references etc, to build up an image of trustworthiness, efficiency, and knowledge leadership. Sell your design and research capabilities.

In the special case of services

Design the service to be transparent. This means that the client should know exactly what she is getting and when.

Design the touchpoints of the service to be of extremely high quality - as measured by the tangible and intangible attributes that the customer finds so important. These are the points where the customer experiences the service.

There are a few resources that you could look at:
The Signal versus Noise Usability blog developed by the company 37 Signals
Seth Godin's blog is always a good read