SurveyGizmo- Free Version Done Right. No Freemium is not Back.

TLDR – The title says it all. This is not scattershot approach of freemium.

My all time popular article – most read, tweeted, commented –  is the one on Freemium I wrote for Gigaom. That article begins with a quote from Christian Vanek, CEO of Boulder based SurveyGizmo. I will always have a soft corner for SurveryGizmo because it is from my adopted hometown of Boulder. And it is an amazing survey tool with great UX.

Three years ago, in my telephone interview Christian shared this with me (I encourage you to read the full interview as it shows how transparent and forward is Christian in his thinking)

“We are now seeing the end of the freemium model — signing up users for free and trying to upsell,” 

SurveyGizmo knows pricing is not static and it needs to constantly iterate to align with changing customer mix and needs. Yesterday they announced a free version that has no limits on questions and responses. What does this mean to its stated segmentation strategy? Is freemium back? I did not get to talk to Christian on this but I posit this is not fall back to scattershot approach of freemium but a carefully chosen pricing strategy to account for change in customer mix.

Here is a view of what its current pricing looks like.


In addition to a free version there are now 3 versions. Contrast that to their single pricing option they had in the past.

And prior to that the choice of three versions.


Now it may appear they are not only back to where they started but also introduced a free version which could be seen as adoption of freemium.

Here is why I believe they did it and why it makes sense

  1. There is abundance of general purpose survey tools for casual users – hobbyists, bloggers and the rest. You cannot compete for this category nor can you expect them to pay.
  2. Casual users  are not conducting a rigorous marketing research but are simply collecting some data and writing it up.
  3. Most surveys by casual users have less than 3 to 12 questions. So offering unlimited questions is a no brainer choice.
  4. Most surveys get fewer than 500 responses. For a carefully designed survey that does random sampling of its target population that is more than enough.
  5. Will these casual users ever become paying customers? Highly unlikely but the cost to serve them is almost nothing and there is value in using them as test subjects for many new experiments and product features.
  6. Serious users start with a decision problem, conduct exploratory step to build hypothesis to test then conduct a meticulous survey. These users need more sophistication from the tool.
  7. All the feature that serious users value – input error checking, adding logic and control to the flow,  rules etc. – are available only in the next tier.
  8. Of these serious users who is willing to pay for a superior survey design, there is a certain class that is satisfied with basic support while another that is willing to pay for faster and better support experience. For the second class there is a premium priced version at $85.

Overall I believe this is pricing done right based on customer segmentation. The goal is not to get bunch of free customers and hope they will upgrade but to keep SurveyGizmo in the consideration set for many serious users by increasing its awareness among all users.


Netflix Price Increase – It is like Starbucks

netflixThere is one brand that is prominently written about in this blog on how clinical it is in executing effective price increases. That brand is Starbucks.  From their very first increase to the one after and another we saw how they made it happen. Now Netflix is joining that elite league. Yesterday it announced a price increase of $1 or 11% and saw its stock shoot up 5.4%

Last year I wrote in detail about their first price increase. Three things that I called out then are the same that stands out this time. This is no secret or anything new in implementing effective price increases. These three are the salient aspects,

  1. Reference PriceReference price is what the customer is used to paying for a service. Any increase is seen as a pain. Like last time, it did not increase price for its current 90 million customers. It is the price for new customers who don’t have the lower reference price.
  2. Giving Customers Options – The price increase is effective on only one of the three options. New customers still have the option of lower priced version.
  3. Value Messaging – Netflix prominently says its cost structure for new content is the reason and then shows the value add from all the original content to justify price increases.

Same 3 principles. Same as Starbucks.

If you look closer you will see the finer details.

  1. The version they chose to price optimize is the most popular one. Their data must indicate it is price inelastic or at least it is priced at inelastic part of demand curve. That is they can increase prices without adversely affecting new subscriber adoption.
  2. This also helps to fix a pricing inefficiency in its 3 versions. At previous prices there was not enough value capture for the middle version with just $1 difference from the highly limited $7.99 version. While it made sense then to get more to choose the middle version the newer customer mix is likely not going to be tempted by the SD only and single screen version so it is better to capture that value at higher prices.
  3. Finally by setting a $9.99 price that is closer to $11.99 price for its best version it may cause some to select that as we have seen in 16GB vs. 64GB iPhone.

Let us do some simple math on why the stock market thinks this is good. Netflix plans to add 4 to 5 million subscribers a year. If we assumed 20% of those who would have selected the $8.99 version would now choose $7.99 version , 20% would choose $11.99. Then it has to lose more than 9.9% of new subscribers before this price increase results in net loss. While the drop may be higher than that initially,  a quarter down the line there won’t be any drop.

Net effect is price increase done right.

Why I Posit Surface Book Pricing is Wrong – Regression Analysis

regression-picI previously wrote about Microsoft’s Surface Book pricing. Looking at the models and their prices in the context of Apple’s comparable offerings I posited that Microsoft priced it not based on customer value but from its cost perspective. Here I want to show a simple linear regression model to add some evidence to the claim.

Please note that there are just 13 data points and this regression is not about making prediction but seeing how the prices are aligned with features and detect variations.  We are also using data from a brand that is well established and has considerable volume. So it is reasonable to use this is as base case.

For the regression, the dependent variable is price and the predictor variables are

  1. Capacity  – 32GB, 128GB, 256GB, 512GB
  2. Screen –   11″, 13″ and 15″ (MacBook i treated as 13)

I could use other variables like the more DRAM and Tablet features (touch screen, detachable), but let us build the simplest model.

Here is the results from the regression



Looking at the Adjusted R-square we can see this is an excellent fit. And all variables were statistically significant at p<0.05.  83% of the changes in price can be explained by just capacity and screen size. So it leaves very little room for influence by other factors like GPU, DRAM, CPU, touch screen and detachability.

Using this model what should Surface Book price should be? The model says $1218 but we see a price tag of $1499.

Microsoft thinks it can extract a premium of $281 because of its hybrid tablet or better CPU features. This is not only not supported in the data but also Microsoft does not have the ecosystem and brand to capture that premium (see Value Waterfall).

So I posit Surface Book Pro’s lowest model is priced at least $300 more than it should have been.

We should wait for price drops soon.

Is Surface Book Priced Right?

Microsoft announced yesterday it is getting into laptop business with the introduction of its new Surface Book laptops. While it had hardware business before with Surface tablets, phones and watches this is a big move as they had so far left the laptop business to PC makers. Microsoft believes the Surface Book models are game changers in the hybrid laptop-tablet market.  As Wired magazine called it, “this may be most exciting Windows laptop in years”. And to match that perception Microsoft has set premium prices for the models.


The cheapest model starts at $1499 and Microsoft thinks you will be willing to pay almost double that when it doubles the capacity, memory and processor speed. With rich hardware specs and with performance that is 50% faster than Apple’s MacBook Pro, it may appear that the product deserves its high price tag.

Product deserves its high price tag.

Read that line again because that is usually the epitaph on graves of dead products. It is highly likely that the Cost of Good Sold (COGS) on Surface Book comes in high as they are packed with so many hardware features. The cost also has a penalty associated with it because of the low volume expectations from suppliers.This is not like Apple for three reasons:

  1. Apple has mastered squeezing out inefficiencies in its supply chain
  2. Apple has the volume to set the price it is willing to pay to its suppliers and suppliers are willing to make just enough to cover their costs
  3. Apple has focused on the right mix of hardware components that customers see as most value but costs Apple far less to deliver them

And when you believe the product deserves its price the price is set by adding a markup to this high cost of building it rather than finding the price point that will drive demand then try to make the product at a cost that meets profit goals.

To see this point of pricing inefficiency, let us place the Surface Book prices in the context of Apple’s MaxBook and iPad Pro prices.


While the line up of just Surface Book prices may look logical it falls apart when you look in the context of choices available to customers. There are always choices to customers . In this case Microsoft wanted that choice to be between Apple and itself by comparing the specs. I added iPad Pro because those are now viable choices as well.

The first thing to notice is how little Apple talks about performance in its pricing. The two features that are used to create value differences are – Screen size and Capacity. This pattern is repeated in not just laptops but across iPhones and iPads. With 100s of millions of these devices sold we must assume that variations in customers value perceptions can be explained to a great extent by just these two features.

Take a look at the comparison chart. There are 9 options from Apple that are priced lower than the lowest priced Surface Book Pro. This means there is not enough reason for an Apple customer to switch and only a small portion of new customers may self-select to $1499 Surface Book. And for premium models, other MacBook Pro models deliver far more value on the two value dimensions (Capacity and Screen) than Surface Book premium models do.

Have you heard of value waterfall?

Microsoft Surface Book models may be priced right from a product view but not from customer view and definitely not priced to drive demand.

Magical Pricing From Disney

disneyland-cast-of-chracters-2There are two kinds of companies – Price Setters who actively take control of their pricing and Price Takers who let their competitors and market tell them. I wrote about the two in the past.

Disney, like Apple and Starbucks is clearly a price setter. You may be distracted by the silliness of characters but think about the number of price points they have to set in a operating  parks. It is no job for Mickey Mouse.

stroller-rentals_Even setting the price of stroller rentals is carefully studied and set to capture value. Single roller costs $15 a day at DisneyWorld, and the double stroller costs $31. Clearly because those who rent the latter see higher value from its convenience and there is bigger demand for that.  And when you look at Disneyland in Anaheim the pricing is $15 and $25, more aligned to customers there.

That brings us to the news of the day that they are increasing prices of annual passes. Predictably there is outburst in social media. But take a closer look at how they did it.

  1. Technically it is not a price increase because they discontinued the previous product called Annual Premium Pass and introduced a new product called Signature Plus.
  2. It has added benefits that did not exist before like free pictures from rides and free parking.
  3. They introduced not just one but two products, second at lower price that is valid for 350 days but the business Christmas weeks. A comparable product did not exist before. This clearly gives the option for some to pay lower price if spending their Christmas weeks at Disneyland is not something they value.

There is more news that they are looking at dynamic pricing  for single day passes. Which again makes sense given the limited and expiring capacity. Wouldn’t you prefer a better product experience on holiday weeks because fewer visitors chose to come in? Wouldn’t you pay more for that value? That is the logic.

What do I think of Disney pricing news? I think this is yet another demonstration of effective pricing.

What can Mickey Mouse teach us about pricing?

That is is strategic, starts with customers and requires lots of data, analysis, experimentation and courage.



Where do you start when you build a product?

bb810ea3c1ce83c2b7168e62c21476c1.jpgPeople ask me this question in different contexts – from casual acquaintances who are not into business, those changing careers from engineering to product management, to someone in product marketing wanting to write a series of blog posts for marketing, to those who want to hire me to build and scale their business.  I share with them my simple, testable, repeatable model to build products.

I find there is no single unified coursework in MBA programs to cover this. I find the methods described in books on product management dive too quickly and too deeply into day in the life of a product manager. I find most enterprises and startups get into hustle of doing things first or attending many meetings about it than put some rigor around this most important aspect. I find the blog posts and advice from pundits are based on myths, fables and selective anecdotes.

I want to share with you my model or framework for great product management. I use this method with every new product, pivots or feature additions. I coach the teams I hire on this method to help them become amazing product managers.  Here I present an infographic of this framework I call, CAMP.

Ask me how I can help you, your business and  your team put this into practice to build products.  Remember, it is not a product until you have identified customers whose problems it solves and who are willing to pay for it.

Pm Framework