In this talk, Eddie Hartman explains how pricing is a strategic lever that tells a story, measures subjective value, and can dramatically affect a product’s success. He opens with a silk‑scarf anecdote illustrating that price conveys status and that mismatched pricing can ruin a product, even when the underlying item is identical. Hartman argues that price is fundamentally a proxy for perceived value, which varies across customers, making it essential to identify distinct value‑based segments rather than relying on superficial demographics. He outlines a simple three‑question framework (reasonable price, expensive price, walk‑away price) to gauge willingness‑to‑pay, and shows how these data enable actionable segmentation and the creation of tiered packages that capture more revenue. Hartman cites a study showing that 72‑81% of innovations fail, and contends that measuring value up‑front can halve that failure rate by ensuring a reliable revenue “oxygen” stream. He warns against over‑feature‑laden products and stresses the need for direct customer contact, especially in B2B contexts, to avoid mis‑reading value. Finally, he differentiates between pricing metrics (how you charge – per‑unit, per‑user, subscription, etc.) and business models (the underlying way a company makes money, e.g., Blockbuster vs. Netflix, bookstores vs. Amazon), asserting that the choice of metric and model has a larger impact on success than the absolute price level.
Chapters
Good. So let me quickly talk to you about what I think you should be doing in terms of price. So remember that price always tells a story. Quick adage, which is real. And it sounds like a fairy tale, but it's not a fairy tale. It actually happened. So there once upon a time was a manufacturer of silk items in China, in Shenzhen. And this manufacturer of silk items then sold wholesale to a French distributor. The French distributor would then take the— mainly silk scarves— in boxes and would sell them at different points. And who was buying this? Well, they were expensive, so ambassadors and wealthy people and politicians as gifts for whoever was in their life. And the manufacturer said, you know what? I could make the same scarf. I could put it in the same box. I could sell it at the same place, and I could charge half and still make a huge profit. I could do this. And so they tried to, and they failed miserably. Vertical integration is really important. Well, vertical integration is important, but here it's because the price told a story. You had a scarf for whatever the price was, and then you had another scarf for 50% off. Which one do you take home to your wife as a gift? Which one do you take to someone that you're trying to impress in business as a gift? Price always tells a story. That's the first thing to think about. Second thing to think about is price fundamentally is a measure of value. Right. Okay, so think about anything that you've bought. How much were you willing to pay for it? Well, whatever that was, that was a measure of the value that you thought it was going to give you. Value is elusive. Value could be sizzle. It could be how sexy you thought the thing was. Or it could be simply the value. It could be how many calories does this have? I need nutrition. But the point is that price is a measure of value. And this is super critical. Because unlike nearly anything that you are going to make, value is subjective. Height is not subjective. That's why we have feet and yards and meters. Weight is not subjective. Volume is not subjective. No. Value is highly subjective. Different people value things differently. If you know what they're willing to pay for it, you know how they value it. Question? Or just arm up? Just arm up high. Hi. Interestingly, if you look at value and if you find groups of people that value the same thing the same but differently than another group of people, they also value the same thing the same but differently. Now you found a segment. Now many people say, well, I know how to do segmentation. They think about this kind of segmentation. So I'm trying to show you here, you look at extrinsic characteristics, you say, well, I'm looking at 2 middle-aged men, they're both rich, they both live in castles, one could be the prince, one could be Ozzy Osbourne, I'm guessing they have different needs, right? One bites the heads off of bats, the other probably doesn't, so as far as I know. So the point is, if you look at external characteristics, you're never going to be actionable. Actionable segmentation is different. Actionable segmentation starts by saying groups of people value something the same but differently from other groups of people. Once you find those groups of people, you have true segmentation because then you can take action. You couldn't take action so long as you were segmenting on pure demographics. Once you segment this way, now you can take action. So how do you assess willingness to pay? There are a few simple ways— and I don't know how much time I have left, by the way. I don't have a— Just keep going. Time. I'm just going to keep going. There are a few ways to do it. The first way to do it is just to ask honestly. Just get some of your friends together and ask them. There's a very big difference between, do you like this app, and do you like this app for $10? 2 fundamentally different questions. One will reveal a lot more truth than the other. The second way you can do it is a little bit more sophisticated. You can ask people 3 questions. First question is, what would be a reasonable price to pay for this item, this app, this service? Doesn't matter what it is. By the way, you don't have to show it to them. You just describe it to them. It may not even be built yet. You say, OK, what would be a reasonable price to pay? And reasonable has a definition. You'd pay it and you wouldn't even think twice about it. Then you say, OK, what would be an expensive price to pay? There's a definition for this too. The definition is a price that you would pay with reluctance. You need to think about it. Huh, I don't know, can I afford that? Is that worth it? That's an expensive price. Then you want to say, what's the minimum walkaway price? Minimum walkaway price, that means I would not buy it. It's too much. I'd have to say no. So again, reasonable, expensive, prohibitively expensive. If you know those 3 numbers for a for 20 or 30 people, you've got an incredibly useful set of data that you can then use to say, this is how much this is worth to these people. Now usually within that group, you'll find that segmentation, right? You'll say, oh, these people think that expensive is here. These other people think expensive is here. What you found then are models or packages or versions. Create a version with the right features to satisfy the expensive group that's up here. Create another version with fewer features and fewer benefits and put the price tag on this for the other group. But now you have a way to truly get a lot more money for the thing you're trying to do. And money, whether we like it or not, is the lifeblood of what we're doing. It's the oxygen that we need to survive. So earlier— I've been skipping around a bit— 72%— we did a massive study of innovation and we found that 72% of them fail. And I think we all come to accept that as just part of business. By the way, Google did a similar study. I met one of the top guys at Google. He said his number is actually 81%, so 9 points higher. And that's fine as statistics, but if you had— if there were 100 of you in this room, and there are not, but if there were, and I looked at 81 of you and I said, you're all going to fail despite all the work that you did, despite all the effort that you put in, that's horrible. And it doesn't have to be that way. It does not have to be that way. And the best thing that you can do to avoid being in that 81% failure set is to measure the value that you're going to deliver, because if you do that, you know that people will give you money in exchange. There's all sorts of other ways you can fail after that. You can poison people, right? You can have a fight with your co-founder. You can fail to deliver on what you promised you were going to deliver and ruin your reputation. Believe me, there are plenty of other ways to fail. But if you simply measure value up front, understand what people are willing to pay for you, and charge that amount, this number, 81%, we estimate will be cut in half. 40 people who previously would have failed will not fail, because they'll simply know how to provide oxygen to their business. And with that, you have growth. And with growth, honestly, you can get away with a lot. So I urge you, please, Measure value, understand segments, come up with packages. What happens if you're doing a B2B business and you can't— like getting that information is not as easy, right? Because you don't have like direct contact with your customers every single day. If you don't have direct contact with customers, you don't have any way of reaching them, and you're planning on serving them, I would worry. You know, if this is a market that's so foreign to you that you have no way of talking to them, That should be a red flag right there. And in fact, I'm not saying it's a massive problem going forward if you then take the following step to correct. Simply try to network with them. Get to know some of these people. Because if you only have your opinion of what they're going to want, the odds that you're wrong, 81%. So start talking to them. I'm sorry, there were some other questions? If not— Number one failure source, by the way, turns out to be packing too many features in. You think that people are going to want it. What you're really doing is putting in unnecessary expense or confusing people about what the heck the thing is that you're going to do. So avoid that. Understand what people genuinely value. Use that to find your segments. Once you find your segments, create the packages that correspond to them. One last thing. Before we— I think we're almost out of time. We've looked at this a lot, and what we found is that how you charge beats what you charge. So you might say, well, it's all about how much the person is going to pay. It's $120 is what I'm going to charge you. Well, believe it or not, there's a huge difference between $120 and $10 a month for 12 months, or $40 in 3 installments. Same amount of money. Totally different. Totally different. People react very, very differently to these things. I'm going to charge you by the employee, $1 per employee, and there are 120 employees, versus I'm going to charge you $120 flat fee. Totally different. So I'm talking about 2 different things here. Metric. What is a metric? You want pizza. You go to an Italian restaurant. They could charge you by the slice. They could charge you by the pie. Or you could be on a prix fixe menu where they charge you by the meal. Right? Or you could be at a buffet where they charge you by the head. Metric, how you measure. By the hour, by the engagement, by the day. Metric. Think about metric. It matters. It really matters. OK? So that's the first thing. The second thing is model. What's a model? Netflix, Blockbuster. That's a model shift. Blockbuster rented you videos. Netflix said, no, no, no, no, we're subscription. Blockbuster made most of their money off of late fees and people hated them. Netflix said, if you're on a subscription, I can feed you in order to get you to stay with me and treat you like a friend and produce great shows for you. That made all the difference. The difference between these 2 and the, the success or failure— model change. Amazon versus bookstores. What was the difference? Sure, scale, technology, all these other things, but model. How does Amazon actually make its money? Does anyone know? Where does Amazon make profits? It doesn't make profits. Well, it does make profits now. It makes profits in recurring revenue from things like AWS and Prime, right? They changed the model from buying a book to having a relationship. Think about these 2 factors, metric and model, metric and model. I'm telling you, it's the difference between being a corner grocer and being Costco. It's the difference between being Blockbuster and being Netflix. It makes a huge amount of difference. More difference— and this is this astonishing thing— than how much you charge. Thank you.
