The Truth? Your Customers Can’t Handle The Truth!

by drjim on December 8, 2014

Can your customers handle it if you tell them the truth?

Can your customers handle it if you tell them the truth?
Image Credit: John Irving

How much does your product cost? No, I mean based on your product development definition how much does it really cost? Once you account for all of the taxes, installation fees, ongoing maintenance, how much are your customers going to end up paying to use your product? Perhaps even more importantly, how are your customers going to feel as they start to discover the trail of additional fees above and beyond the initial purchase price that they are going to have to end up paying?

The Problem With Concert Tickets

If you have purchased tickets for a concert or a sporting event in the past few years, you know that there is a big problem with the way that these tickets are priced. The cost of the ticket is often not what you end up paying. Instead, there are a number of addition fees and service charges that get tacked on to the price that can significantly boost your final cost.

A good example of this are tickets to a recent Justin Timberlake concert. An upper-level ticket has a price of US$400. However, there is an additional $199.50 service fee per ticket. Service fees can also include a $7.50 electronic-delivery fee and a $11 shipping fee for paper tickets.

The addition of these fees has been the #1 complaint of customers for quite some time. StubHub competes with other firms such as Live Nation Entertainment and so how they price their tickets can have a big impact on how much business they do.

How StubHub Tried To Solve The Concert Ticket Problem

After having interviewed their customers, StubHub decided to do something about the ticket pricing problem. What they did was to eliminate all hidden fees associated with tickets. StubHub now offers an “all-in” price: what you see is what you will eventually pay. This sure sounds like something a product manager could add to their product manager resume.

The problem with what StubHub has done is that now their tickets appear to be more expensive than the completion. As a result SubHub’s sales have fallen as fans choose to go with other web sites that list tickets that have lower base prices and hide their fees.

StubHub realizes that they have a problem. They are taking steps to deal with it. They have been cutting back the fees that they charge to both buyers and sellers. This will, of course, cut into StubHub’s profit margins. Buyer fees have been cut to as low as 2% and seller fees have been cut to between 6% – 15%. StubHub believes that over time their customers will learn that their pricing offers them a better deal than the other sites.

What All Of This Means For You

As product managers we all have a two-sided relationship with our product’s price. We’d like to charge as much money as is possible in order to boost our company’s bottom line and make ourselves more important to the company. This is almost a part of every product manager job description. However, we also realize that if our product’s price is too high, then we may end up scaring away potential customers.

Over at StubHub, they’ve taken the bold step of creating a single price for their products that they now present to their customers. This price incorporates all of the additional charges that the customer will end up paying. However, they’ve discovered that customers now believe that their products cost more than other products that have additional tack-on fees. StubHub believes that their customers are learning about the value of their prices, but they have taken a hit to their sales in the short term.

Providing your customers with a single unified price that accurately represents what they are going to end up paying you sounds like good business. However, customers are not always smart enough to realize the value that you are providing them with. If you are willing to take a short-term hit to your sales, providing one accurate price may be a way to make your product stand out from the pack.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: If you do offer one all-encompassing price, how long should you stick with it before you’d revert to your old way do doing pricing?

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What We’ll Be Talking About Next Time

How great would it be to be a product manager who was in charge of a product that was showing up in the newspapers every day? Box, a company that offers online storage, is preparing to have an Initial Public Offering (IPO) where they will sell stock in the company for the first time. It turns out that this is all great, but the Box product managers are facing some serious competition and it’s not 100% clear what they are going to do in order to deal with it…

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