Why “How much would you pay for this is?” is not a bad question
A simple pricing experiment you can do today
Anyone who knows the Mom-test preaches that “How much would you pay for this?” is a bad question.
My opinion has changed. It’s a great question. It enables you to discover how customers reason about prices. This helps you with your pricing.
Let’s unpack this with an example. Meet SteamUp, a startup that makes a barista-quality milk steamer.
Thanks to team SteamUp for allowing me to use this example!
☕ Meet SteamUp
Solution: A stand-alone milk steamer
Problem: A lot of espresso machines don’t come with a steam pipe, or the quality sucks. Most external milk frothers suck. Mechanical frothers don’t bring home that barista-style foam.
Job to be done: Make a barista-quality cappuccino at home.
💰 What is a good price?
SteamUp calculated the price (including margin) to be around $250 per unit. About 4 times higher than most mechanical milk frothers, which cost about $70. Is $250 too much?
They checked with dealers of espresso machines. Their verdict: Max $100. Dealers say that people just opt for a machine with a steam pipe beyond that price.
When scouting the market for competition, the founders sometimes saw espresso machines of over $1000. Why is the milk frother capped at $100?
The team went on Reddit and asked: “How much would you pay for a good quality milk steamer?”
I expected a normal or power law distribution. The results showed something unexpected.
⚠️ What about that spike at $300+?
That is an unexpected spike. To investigate this spike, they scheduled interviews with people on their sign-up list.
The $300+ people all said: “My espresso machine is over $1000, I don’t care it’s a fraction of that.”
Lightbulb moment. People look at that price as compared to their total coffee setup. And for some people, having good steam is worth more than $300.
Can you guess the coffee setup price of someone that pays about $75 for a frother? Their interviews showed it was $200-$300.
People spend about 30% to 50% of their coffee setup on milk frothing. Great insight.
☕ Do you want a SteamUp?
SteamUp is getting ready to produce. The first batch will be 650 SteamUps.
Be the first to know when they launch on Kickstarter. Sign up here.
✅ Lesson: the why is more important than the number
“How much would you pay for this?” is a bad question if you just extract the number. The number is not as interesting as the underlying reasoning.
➡️ Why is $300 worth it?
Ask why. Again. Again and again.
A deep understanding of the customers is the essence, not a nice to have.
👨🏫 Tips for this experiment
‘Why’ is best asked in an interview. Surveys suck for this type of question.
Having quantitative data (such as a poll) is not a requirement. You can also just interview 10-20 people and ask for the ‘why’ on a price point.
Don’t take the results too literally. It could be that you have a new product category of which people don’t understand the value.
Online communities, such as Reddit, are very anti-spam. Don’t market yourself as a startup in that community. Be genuinely interested in what these people think in relation to their passion/hobby.
Try to find commonalities in the people responding. Are there any archetypes of people responding with similar price ranges?
🔗 Best reads on pricing
The best talk I know on pricing (Y!C video)
Monetizing innovation (book with many pricing experiments)
❓Got a good experiment story?
I’m always looking for concrete examples of failed or successful experiments. Please don’t hesitate (or hesitate a little and then do it) to contact me.
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