Tuesday, May 31, 2011

What you don't know about Pricing

A few years back, I read an article about Pricing Strategy @ Joel on Software, and I learned a few practical tips about pricing.
  1. The need for Basic, Professional and Extreme version of products, are different groups of buyers are willing to pay different prices for almost the same product (maximize the price buyers are willing to pay).
  2. Once the sales start to plateau and go downwards (capturing buyer willing to pay the “fair” price), reduce the price by one notch to capture the buyers who wanted the product, but would prefer a cheaper price (“bargain” price). And repeat the cycle until it can’t get any cheaper in order to capture all the potential buyers.

After reading Priceless by William Poundstone, I learned a few more goodies, and never to base pricing on cost.
  1. Anchoring - Whenever we try to estimate a numerical value, we are unconsciously influenced by related numbers just considered. A ridiculously expensive item next to a merely expensive one causes the lower priced item to be perceived as a bargain, and increases its sales. i) $200 LV iPhone cover is a bargain when put beside the $20K LV bag. ii) Restaurants in New York City will advertise a $100 hamburger, no one would pay that kind of price, but will buy a nice steak dinner for a somewhat inflated price ($40).
  2. Extra high and low prices existing simultaneously on the shelf with low prices unconsciously influence choice. i) If a person is choosing between soups that cost $1, $3, and $5, they are more likely to choose the $3 option. If they are choosing between soups that cost $3, $5, and $17, they will likely choose the $5 option. ii) Starbucks has three cryptically named sizes of coffee: Tall, Grande, and Venti. Puzzled or indecisive customers tend to pick the middle choice, Grande. This is a classic example of what psychologists call “extremeness aversion.” When uncertain, everyone instinctively favors the middle option, figuring it’s safer. In fact, the Grande is 16 ounces — meaning that you’ve just ordered a pint of expensive coffee, rather than what used to be a normal size cup.
  3. Every time a company raises its price, some shoppers switch brands. Manufacturers have been lowering package sizes for things like cereal and keeping the prices the same. i) Skippy’s peanut butter now has a dent in the bottom of its jar. It holds less peanut butter, but the price is the same.
Pricing Concept and Psychology
  1. Poundstone argues that much of what we think of as "fair" pricing is nothing more than a collection of cognitive fallacies and biases. The most important of these fallacies are the contrast effect (pricing taking on significance from neighboring prices) and the anchoring effect (we are drawn to a particular number). i) It's all in the comparison. A $50 gift from Aunt Marge for your wedding is wonderful, unless you were expecting her to give you $200, like she did your sister.
  2. Shoppers moving clockwise through a supermarket spend about $2 more per trip than those moving clockwise. One holds that shoppers think of their carts as cars and “drive” on the right of aisles. This makes it slightly easier for the right-handed majority to toss impulse buys in their cart.
  3. The gross profit margin of the 99 Cents Only Store is twice that of Wal-Mart. Dave Gold, founder of the 99 Cents Only chain, discovered that he could get rid of slow-moving merchandise (priced at 79 cents) by raising the price. At 99 cents, the same items sold quickly.
  4. Women seem to be less price-sensitive than men about health and beauty products. Political correctness hasn’t deterred retailers from taking advantage of that. You’ll find that many products are offered in “women’s” versions that cost more. Barbasol shaving cream for men is about $1.69. The women’s version costs $2.49 — and comes in a skinny can holding less
  5. Most people would rather buy a $1,000 flatscreen TV with a $200 rebate rather than an $800 set with no rebate. They assume that a $1,000 TV has to be better (even when its only extra “feature” is a rebate coupon).
  6. Based on the price of cell phone bandwidth, the “fair” value of a text message ought to be about 1/1000 of a cent. Instead, the average consumer pays over 20 cents a text, and usage continues to zoom. Needless to say, kids send most texts, their parents pay the bills, and those parents haven’t a clue what they should be paying.
  7. The new Apple iPad’s 3G plans run $14.99 a month for up to 250 megabytes of data, or $29.99 for unlimited usage. Obviously, since it’s a new product, few can predict how much data they’ll use. But that 250 MB limit creates anxiety: What if I exceed the limit? Won’t I get socked with a huge bill? This leads to what behavioral economists call “flat-rate bias.” Consumers prefer the security of a flat rate, even when they’re better off without it. It’s a safe bet that the $29.99 rate will be popular and that many of those taking it would have paid less with the cheaper plan.
The Ultimatum Game
  1. The ultimatum game is a game often played in economic experiments in which two players interact to decide how to divide a sum of money that is given to them. The first player proposes how to divide the sum between the two players, and the second player can either accept or reject this proposal. If the second player rejects, neither player receives anything. If the second player accepts, the money is split according to the proposal. The game is played only once so that reciprocation is not an issue.
  2. A moment's reflection will show that the second player ought to accept any offer at all, and that the first player ought to divide the sum in such a way as to give himself the most money; for instance, assuming the ten dollars can be divided into dollar units only, the first player ought to give himself nine and offer one the the second player, who then ought to accept it. That would be the way of rationality.
  3. The surprising thing about the ultimatum game is how seldom this occurs. The average split, according to some of the studies, was 50-50, and other results showed that most of the second players would reject any offer below three dollars.

7 Signs of Failure for Internet Startups

Let’s see how well with my Internet Startup (malaysiamostwanted.com) fair based on sgentreprenuer’s Mapping The Startup Genome: The 7 Signs Of Failure

  1. Not working full time - I am 80% fulltime (up from 50%) at the moment. PASS.
  2. Solo Founder or 4+ Founders – I am a solo founder still looking for a business-savy partner with Internet Business knowledge. NUTS.
  3. Don’t have a Technical co-founder – I am a techie. PASS.
  4. Wrong Founding Team Composition for the Wrong Type of Startup – Based on the survey, I am The Automizer (Type 1): Common characteristics: self-service customer acquisition, consumer focused, product centric, fast execution, often automize a manual process. PASS. (Benchmark your startup - WARNING: the questionnaire is pretty lengthy).
  5. Don’t Pivot at All or Pivot Too Often. I won’t say pivot, but introduce new-relevant product when necessary, and abandoned less valuable products due to limited resources at hand. PASS.
  6. Don’t Listen to Customers. Not much direct feedback from users, but the user base is still growing organically (we must be doing something right, though it could be better) with some good comments. PASS.
  7. Scale Without Validating Market. I think they mean capital and burn rate, but we definitely don’t have funding for massive growth.

At times I do hope for 2 things, a business-savvy-worthy partner to help me with customer acquisition and monetization, and perhaps funding to build the team and accelerate the growth.

At the same time, I do marvel the fact that she is started with self funding (never thought I would be doing this, most of the time thinking of burning someone's else money for my own glory, hahaha) and actually sustainable with good growth and prospect. Could this be the start of the not-so-typical family owned small Internet Startups kind of thing? Or we should join the get-funded-and-grow bandwagon? I hope I am not delusional.

Thursday, May 19, 2011

In between escaping and solving a problem

I remembered an old friend told me we create a solution to solve a problem, only to create more problems. We are not actually solving the problem, but shifting the problem. His famous example if we are tired of walking, we pay to take a bus. But the bus is unreliable and uncomfortable, so we bought a car but end up getting stuck in traffic jam and higher maintenance cost.

I guess I am doing the same with my career. At my first R&D job my focus is to give it all I got, but I soon realized the company had been unfairly remunerate me over the years. I was hoping a more rewarding career at a “real” corporate business software company, but sadly the company didn’t do well. Then I venture into freelance software development in hope of more control of my own destiny (and lessen dependency on external entities), where I found it to be too time consuming, flow of business is unpredictable, there is not much continuity and being plagued by bad paymasters. So now I plan to steer towards web products and services, where there is freedom of boundary and a platform to be built upon for the longer term. The downside is that the money is not instant and abundantly, but I can see good potential ahead; most important it is still full of hope and excitement, at the moment :)

Am I running away from problem, or I am solving them instead? One makes me felt weak and cowardly, while the other made me feel strong and in control. Should we stay and remedy the situation, or should be start afresh at greener pasture? To patch a broken program, or build from scratch again?

It seems difficult to differentiate between the right and wrong thing to do, and when I come to such crossroads there is only one question left: will there be any regrets in my choice?

Review: Inside Steve’s Brain

What did I learned about “Inside Steve’s Brain”?

  • Keep a small team (less than 100 people), less they become unfocused and unmanageable.
  • No features creep, keep thing really simple (you know it’s perfect when there is nothing to take out anymore)
  • Design is function, not form.
  • Use repetitive prototyping (design, edit, refine) to select the best product. Avoid serial process (Waterfall vs. Agile).
  • Keep the players and fire the bozos.
  • Use carrot and stick: one day you are the hero, the next you are asshole (hero/asshole roller coaster).
  • Find a passion for your work.
  • Steal. Be shameless about stealing other people’s great idea.
  • Apple is the complete lifestyle experience: Hardware + Software + Service in a single package.

  • Focus on what’s important.
  • Focus on what you are good at, and delegate all else.
  • Sometimes you just have to start from scratch again, just like Max OS X.
  • Osborne effect: keep the new goodies secret until they are ready to ship, lest customers stop buying current stuff while waiting for the new stuff.
  • Don’t shit on your own doorstep: don’t bad mouth about your company and product in public.
  • Don’t listen to your customer for innovative new product, as they don’t know what they want. If Henry Ford as what his customers want, they would say a faster horse.
  • Design is for everyone, not just designer. Include the engineers, programmers and marketers.
  • Keep the best people around you. You can fire the projects or products, but not the bright people in it.
  • Don’t listen to “yes” men. Argument and debate foster creative thinking.
  • Let your partners the freedom to create and innovate.
  • It’s okay to be a passionate asshole.
  • Become a great intimidator. Inspire through fear and desire to please.
  • Insist on things that are seemingly impossible.
  • Celebrate accomplishments with unusual flair.
  • Don’t lose sight of the customer: The Cube failed because it was built for designers, not customers.
  • Concentrate on great products, not becoming the biggest or richest.
  • If you miss the boat, work hard to catch up.
  • Don’t be afraid of trial and error.

Saturday, May 07, 2011

The World is a tough place to be, but we should be stronger

We all know the world could be quite a cruel and unfair place, but are we cruel and unfair as well? If it’s not our doing, then whose doing is it then? Who are the bad guys who screw us, or are we the bunch destined to be screwed one way or the other due to our sin? What is the real evil here?

We are raised to be good, taught to be kind, compassionate, helpful and truthful. We even teach our children to be good, and frown upon their less than noble act. I guess we all believe in goodness, and believed that we are indeed good (no kid will admit that they are naughty), but it’s quite possible that we are trapped in the goodness delusion somewhere in between.

We believe that we are forced to be evil in order to protect ourselves, thus justifying our evil acts through “noble” causes. Is either me or you, so it’s better that you are on the losing end (不是你死,就是我亡). We believe we are helpless in this chaotic world (人在江湖身不由己), where selfish act for self-perseverance is justifiable and acceptable. A bit of trickery or perhaps treacherous is allowed (兵不厌诈), it is even considered as a good strategy. We taught about honesty, but we believed honesty doesn’t pay (忠忠直直,终需乞食). Is there still any goodness left within us?

We sacrifice a lot of things in life, so much so until we forgotten what is so precious about life anyway? We are unhappy most of the time because we sacrifice our love, our dream, our passion, our dignity, our righteousness and our believes in something which we know is of secondary importance, yet we spend all our life and energy fighting for it: money. Most people give in to the difficulty of life, admitting that they can’t or don’t know how to change for the better, or can’t afford to. We believed our life had been shaped in a certain sense, and we don’t really have many choices left. We are all doomed in a certain sense.

Our life is known to be fragile, where we can die in a split second accident, or have a slow death by chronic disease, something which we totally have no control of. Thousands of dreams are shattered every day, but many more conjured up there after; I hope there are more dreams created than destroyed.

What are the things that really matter in our life? Do we do the right thing, or perform as expected by others. Do we really try to live our life with no regrets, or did we compromise so much until we had lost ourselves.

Can we live a noble life with a noble cause, do it is not possible? Can we promise not to do harm to others no matter under what circumstances, so that the world could be a better place for our children. Can I be a good son, a loving husband, a trustworthy friend, and hopefully a great father before the end of time? Do we all have a decent conscient? I hope all of us can live a meaningful selfless life.

We all should take a moment to ponder 2 questions: Did I screw up my life? How can I stop screwing myself harder and start to do the right thing, even though it's not my fault?

Monday, May 02, 2011