Comment by mbesto
1 day ago
> Differential pricing is really pernicious because if the product happens to be super valuable to you, they're likely to find out and charge you even more
A super valuable solution to your problem is pernicious because...checks notes...a provider is trying to align their pricing with the value it creates with solving your problem.
I can't scratch my head hard enough.
> a provider is trying to align their pricing with the value it creates with solving your problem.
That's just an euphemism for "a provider is trying to capture for themselves all the value their product creates for you".
A real head scratcher. Perhaps has something to do with there being no point of buying if all (or even most) of the value flows back to the seller? Unless you're a nail wholesaler and are happy with 0.1% margins because you sell by truckloads anyway.
No, I get the purpose of his comment. For a complex product and large customers, it's rare that you can guess what is useful to the company and price it appropriately. The product may offer 20 features, of which 5 are useful to the customer. Your (few) pricing options may be insufficient. You may have a pricing that offers only 3 of the features they need. They're not going to buy it. Your next tier may offer 10 options. It has all 5 of what they need, but too much more, so it's priced too high.
Even worse, your tier may have 10 options but still not capture the 5 they need.
So you negotiate, and they provide you the 5 you need at a reasonable price.
This is standard.
Oh, and negotiating a trial period is almost always a must. Perhaps a 2 week free trial is not enough for the customer. If you could bump it to 4 weeks, it could lead to a lucrative sale.
Right. The scenario you describe is reasonable. But as a buyer, if you put out those few pricing options, even if none of them match all my needs, I get to see both the features you offer and the prices you ask, which gives me the two critical pieces of information I seek: whether you have the capability to satisfy some or all my needs, and what order of magnitude we talk about in terms of costs. If that information tells me that you might have something for us, and it might fit in our budget, then I'll be more than happy to call you, and spend whatever time is needed to agree on a set of features and a price that works for both of us.
The thing I want to desperately avoid is wasting time dancing around the salesmen trying to overhype their product while staying vague on the details, in hopes to get me to buy (and pay as much as I can) regardless of whether I get any value from it.
> "a provider is trying to capture for themselves all the value their product creates for you".
And what precisely is the problem? Obviously, we have incomplete information, but in efficient markets ALL providers all trying to capture the full value of the solution they provide. With infinite time, markets essentially adjust themselves towards this goal. As long as that number is 99.99% (meaning the buyer creates an additional 0.01% of economical value) it's still valuable for BOTH parties.
FWIW most SaaS businesses severely underprice their offering relative to the economic value they create.
There's a theory an economics that says that the more different prices a provider can charge the more of the surplus they capture (ie they can tilt that percentage towards the seller and away from the buyer).
Of course, if they're a monopoly provider and the buyer really needs it, they have to cough up. But generally there are substitute products. So the buyer would do well to look for an alternative that doesn't do differential pricing to capture more surplus for themselves.
> And what precisely is the problem? Obviously, we have incomplete information, but in efficient markets ALL providers all trying to capture the full value of the solution they provide.
Because:
1) In efficient markets, all users also try to capture full value they get from the they bought. Efficient competition is purely adversarial.
2) You say, "As long as that number is 99.99% (...) it's still valuable for BOTH parties". Unfortunately, incomplete information and information asymmetry makes it more than likely that the "is trying to align their pricing" so that this number is more than 100%. That is, if you're not careful, they'll scam you.
The two above are arguments why this is a problem for the buyer, in practice. The next one is more general:
3) Everything that's good and nice and human happens inside economic inefficiencies. For human beings, a truly efficient market is a literal definition of hell - everyone's suffering as much as possible, spending all their energy to earn exactly enough to barely survive.
> FWIW most SaaS businesses severely underprice their offering relative to the economic value they create.
As it should be.
I'll say here what I say to people who talk about stopping to post anything publicly, lest it ends up in LLM training data:
Trying to capture for yourself 100% of the economic value you're producing is an extreme form of greed. When companies try to do that, they get called evil and used as examples of everything that's wrong with late-stage capitalism and such. Human society works best when people don't capture all their productive output, when they actually do leave some money on the table, because this allows others to take it and use it to innovate and create more value - which, again, if they don't capture entirety of it, allows even more people to build on top of it.
All of us who produce, we also consume. Society and its markets form an ecosystem, which needs some inefficiency to evolve, be resilient and thrive.
(See also: running any system at 100% capacity is "efficient" up until some random event causes the load to grow ever so slightly, even for a tiny moment, at which point the system suffers a cascade of failures and dies.)