Foundations Course – Lecture 5 – Pricing

the back and ruy and uh what is the smartup academy

it’s a program to teach the profession of building successful companies so we

strongly believe that this is a profession that you can learn and you

can practice and you understand uh all the pieces and what we have in here is

the foundations course it’s going to be a 13 uh lectures of the foundations

course I will tell you a secret I’m still working on them one by one but it helps me build the whole process and the

definition of what is a successful company that I wrote in here is a company that have three attributes

first and foremost it’s profitable in cash terms which means it generates cash months after months uh

it’s fast growing and it’s all done with a modest investment and we will talk about that

later on as well then we also have workshops you see the tip of the iceberg in the homework

we give you so the purpose of the workshop is to have a few companies two

three four companies sitting and uh doing one of the subjects like branding first

each of the companies working on their own company branding and share experiences as we do that what I’m doing

with you here is take from time to time one of the companies in the portfolio and bring it over here we were supposed

to have today uh biofor then there is The Residency

program because very much like any other profession you can hear all the lectures in the world they are nice you do their

homework you have you understand the uh philosophy the strategy But when reality

hits everything is different everything looks different and so we work with the

companies in here usually The Residency program is four or five years or as long

as it takes um people graduate or companies graduate when they are growing

fast profitable and doing great or when they are acquired like happened with OP

which did everything um so it takes a long time to do that and usually companies that are in The Residency stay

with us and we meet with them every week two weeks three weeks depending on the situation depending on the company uh we

work with them very closely so you will see the same slides

at the beginning because repetition is the essence of studying so I’m the things

that are important to me I keep repeating until everybody can sing them

so as Galileo galile said mathematics is the language in which God has written the universe he wrote that in the 16th

century and he was the first to write an equation in physics and paved the way to

Newton you can see the two objects falling down one big one small

uh Plato was sure that they the bigger one will arrive first in the to the

ground uh and he didn’t let facts uh disturb him so um we should be aware of

that so the language of businesses we talked many many times is money but the

point about money is that we need to do equations if you can’t calculate if you

cannot write equations and understand what you’re doing then you will have a spreadsheet full of numbers but it’s

meaningless kind of so in order for it to be effective it had to be guiding you

towards a certain result that you can measure whether you solve the equation correctly or you didn’t solve it

correctly and that’s what we building here so successful companies I said is

profitable and here’s how we measure profitability how long does it take for

the company to become profitable and profitable again is Cash generating okay

in months did it take you two months to be profitable 20 months 200 months make a huge huge difference okay so you want

to measure how long it takes you to become profitable the second modus investment

how much money is needed to become profitable okay again it’s a number 1

million 2 million3 million $100,000 how much money is needed in order to become

profitable fast growing how do you measure fast growing so we took the

following uh formula and we said how long does it take to pay back the

investment so we connect growth with the investment obviously if you took a $100

million investment you have to work really hard to give it back if you only needed a million dollar to be profitable

then it’s much easier to bring it back so that’s how we connect into equations

basically the business model we’re going to talk about today okay so what is a business model in simple terms how is

your company going to make money know business model so business is

about making money how does the company going to make money well it’s a simple

question with a very complicated answer because there are many many parameters

that will dictate how your company is going to make money today we’re going to deal with only one parameter which is

your pricing strategy okay and you can see see in here there is product service customer

profile pricing packaging cost structure a zillion things and we will deal with

them gradually in the next lectures but we will start today with one which is

the pricing decision madees when con conceiving the business models are the

most important ones why because once the company start working and especially as

you start having customers it’s extremely difficult to make

changes so these things have to be thought out experimented and tested as

early as possible later on expensive as well as

sometimes just you get that’s the way we’re doing things in here you go keep going and keep going and keep going even

though it doesn’t go really well so the building of the business

model is it you come up with ideas you change parameters and as I said the model

allows you to measure three numbers time to profitability the amount of money you need and time to return the investment

so you have three numbers you can compare is this business model better than the other one because you have only three numbers to look at them and you

want them to be the smallest possible Right you want to be profitable in day minus one you want to have zero

investment and return it on the day of the first day right the lower the

better when you don’t do that then you hear pivot we had to Pivot right what is

Pivot mean pivot mean wow we took a lot of money threw it out the window and we

start all over again it’s painful it’s expensive you really don’t want to get there so you want to Pivot small pivots

at the beginning before you really make big decisions now since business model is so

critical uh today we’re going to talk about other people as well so I’m not inventing

everything so there is this book business model generation after the lecture anybody who

wants to take a look at it is welcome to take a look uh take a picture or order

it whatever though I have to admit I uh don’t strong strongly recommend the book

um but there are books that I recommend that you will see so disruptive new business business models are emblematic

of Our Generation wow I love these sentences right we’re going to disrupt the world okay yet they remain poorly

understood even as they transform competitive landscape across Industries big

words I don’t follow them so here’s the idea here you have a

canvas you probably anybody that went to school and learned about it knows these canvas

and it has nine elements value proposition customer

segments revenue streams cost structure Key Resources channels blah blah

blah I’m not going to go into details into them because I don’t think it’s a

really good model but the nine building blocks are all interconnected that’s the

problem with them so you can’t make a change to one without expecting a change in the others right

if your value proposition is poor your pricing is probably also very low right because you don’t give a lot of value if

your value proposition that you convince the customer is high you can charge more so they are interconnected you can’t

really do one without the other pricing in customer segments we’ll talk a lot about pricing and customer segments so

they are all interconnected cost structures and pricing you can sell something for less than what it cost you

to build it and so forth and so on so how do you model all of these

dependencies and how do you measure and compare Alternatives as I said before the model that we built last time and

that we gave you as a homework so you have a a worksheet for that allows you

to take all of these assumptions and play with them see what happens if I double the price that I sell well I

probably will then have to reduce the number of customers but I can start playing with it and see what

happens and that’s the the most critical thing these are examples from the book show it

to you you can see a lot of talking and people doing charts on the board it’s

nice but I like to calculate things here’s another example of it that’s all

taken from the book actually I took it from online but doesn’t matter it’s from the book and

uh we have a spreadsheet that models how your business evolves over time remember

that I said before everything has to evolve over time because that’s the way businesses

work and the business model is a powerful tool to analyze and evaluate

business options and I put in here just a partial list of pricing models the

price customer segments payment terms gazillion parameters and these parameters actually have a big impact on

what you do as I showed you in the example last time if you

charge $1,000 a month or $112,000 a year

most of you will say yeah the same thing right it’s $12,000 no it’s

not one will require the, a month will require a lot more money as an

investment takes a much longer time to be profitable so changes as subtle as that can have huge

impact and to see this impact you need the spreadsheet and you need the model and you need to know what to

calculate the same model if done properly can you be used later on to measure your

progress and that’s really important because what you want afterwards is to take all the numbers you get from the

accounting system and so forth and put them into something that you can understand that shows you how your

business really evolve and compare it to the model you built very very critical

so what do you measure I said before profitable modest investment fast

growing now let’s talk about the business model again we talked about it last time I repeat it on purpose okay if

I repeat it four times there’s a good chance maybe you will remember what I was talking about so every business

model starts with two very big sections revenues and expenses

right so you put all your revenues in one place you put all your expenses on

the other one and you subtract one from the other can’t be cheer than

that if you take home a salary of $20,000 20,000 shekel a month and you

spend 30,000 shekels a month something has to give if you bring

home 30,000 shekels a month and you spend 20,000 you can take the 10,000 and

put it as savings for your keys right so if the revenues is bigger than the

expenses you’re profitable otherwise you are in red as simple as can be

now how do you income how do you model the income again it’s really straightforward you just put what you

sell the income streams that you have aign per product or family of products

as the company matures a little bit you usually have more than a single product many many times you have services and

Consulting they behave differently and many times there are other sources of

income you put all of them on the top again by month then come the expenses

and they’re usually divided into three very big categories sales expenses okay

which are cost of producing and delivering the product many many times not everybody has a SAS model right you

just give a password and you happy so if you produce bread or shoes or cars or

chairs or whatever it is or clothing there’s a cost you need to sell it above

your cost or else you lose money there’s cost of selling the product

regardless of how you sell it there is a cost so if you sell it in stores then

the store usually takes 20 30 40% of the price so if I buy it at $99 in the store

the store buys it at $70 or $60 okay if I have salese they usually get salary and

commission so again it reduces the value the amount of money that is available uh anything you do in sales

cost money and of course there’s the the customer acquisition cost then you have the second tier which

is stable usually it’s called fixed expenses but fixed expenses have a very

clear meaning in uh in accounting so I didn’t use the word fixed and these are

all the things that are not related they are expenses but they are not related directly to every single

sale so it’s the salaries of everybody excepts the salese it is the rent the engineering

marketing everything else in the company that is kind of stable not related to customer acquisition cost or to sales

customer acquisition cost is for example if you advertise on Google Google ads and you measure how many clicks and how

many of them convert that’s cost of customer acquisition but if you just do press

releases or you send emails or whatever usually put them as general

marketing and then there is one time big expenses that happens in every company you know you have to build something

it’s not a recurrent expense you put it there when I talk about a business model

I talk about operational cash business model which is very different than what

you see in p&l in accounting okay it’s like you think about your business model

as you think about your budget at home I think what happened today is that people start thinking disruptive technology

we’re going to change the world and they forget that businesses are actually very straightforward to understand it’s money

in Money out there’s nothing else okay so as long as you think about it in this

very simple terms you are in the safe place so that’s why I like cash because it’s very

simple to understand if you don’t generate enough cash to cover your expenses you need money from somewhere

else this is usually expensive money

now every model is based on assumptions and that’s the key issue here okay now

the main issue that I would like you to do when you build the business model is put all of your

assumptions very very explicitly and then think how you put

them into the spreadsheet in calculable ways okay just having an assumption okay

let’s do marketing first or branding first what does it mean financially

that means probably I’m not going to hire the R&D team before I establish that so I can move the cost of the R&D

team to later on but I have to put the money into the marketing I need to bring somebody who will do something in

marketing so it has expenses every single assumption that

you have like in the model we talked last time right which is

attrition you know how many customers will not renew so you have to put that number in

there you can say zero all of them renew but put this attribute or this parameter

in to the model so you can start checking the impact of it so the whole

idea here is you convert every single assumption to something that makes a

difference in the uh business model into the spreadsheet and the purpose of the

model is to test the different values of these parameters so you really want to

then start playing with it well how fast revenues grow so if I have one customer

month one two customers month three three customers months for does it grow linearly does it grow by 5% months over

months all of these assumptions have to be put explicitly in

the model and and the most important thing is well if I believe I will grow 5% months over

over months what’s the fuel what’s going to cause it to happen okay so it forces you

to start thinking backwards from all assumptions about what what do I need to

do in order to cause that to happen and what happens if it doesn’t grow that way what happens if I only

grow 1% months after months okay all of that you can text in this

model a big benefit and this is really key we’ll talk about it later on I’ll bring

examples when you start with branding first you have a chance to talk to Pro prospects and potential

customers right at the beginning you don’t have a product so you’re not committed to

anything and that’s the beautiful thing about it once you spend 10 Engineers for

two years developing your product you feel that’s what you’re going to sell and excuse the English screw them

I’m going to find how they are going to buy this but when you start the other way around you’re not committed to

anything and you listen to customers because you have nothing to lose you

just listen you try to tell them something and whether they respond to you or not we had this example now with

Iran in his little company so we wanted to show them an example of the product

and I asked Iran say ask them what do they see you know don’t tell them what

they see ask them what they see and we were surprised because what they saw is nothing that we thought about they just

immediately said oh my God here’s what I see so that’s the beauty of branding

first you start talking to customers and you have nothing concrete that you have

to defend so you can test a lot of things we will talk about it later on I’ll give you more examples of what we do with the

other company and you will see how the doing things at the beginning gives you the freedom to really really understand

these parameters as much as possible okay so instead of the N9

elements of the canvas it’s easier to try to answer the following wh questions

right what who we and so forth why do I phrase them like this it’s just the

other one looked so I didn’t understand what does it mean revenue streams and all of that stuff these are just simple

questions that force you to start thinking so who are the users and who pays the

money most of you will say it’s the same no

well in many cases it’s the same in many other cases it’s not the same the

obvious one are all the advertising models you don’t pay Google a

penny right so who pays the money other people you don’t even know you see them right they all the people that advertise

right that’s the most let’s call classical example but it’s beyond that if you have 10

B you are the user who pays the money the compy

right so you have here two elements you need to deal with you

need to have happy users but you also need to have happy people who pay and virtually in most companies you will

find that who are the users and who pays the money are not the same or there are slight differences in

there okay even in B2B big company many

times the person who makes the decision is not the person who who cares about the money it’s somebody else in the

company who cares about the money and many many organizations or companies

that try to sell don’t really understand that the person we are talking to don’t care about the money the other person cares only about the money and not about

the product and you need to play this uh very delicate dance why do they pay or

not pay why is the value you know if you want them to pay why do you want them to

pay and when you want them just to be user and not pay why would they do that what exactly do

they pay for well people think about the product but in reality there isn’t anything like

that just let take a CRM how do you pay for a

CRM seats number of

transactions database size number of

Records well go to Amazon services and the list of what you pay

for can blow your mind right you get a bill that is that thick you know thousands and thousands of thousands of

lines so what do you pay for is actually fairly complex in many organizations and

in many situations and if you package it one way or another makes a big difference give

you another example that is very well known a coffee machine in the

capsula right you pay very little for the the coffee machine why because the capsules are specific to that coffee

machine so they give it to you virtually for free in order to hook you so you can

start seeing how complicated and complex and Innovative the business model can

become just by asking these very simple wh questions where do they pay say what do

you mean where do they pay well if they if you sell through stores they pay the store not you if you sell through

resellers they pay the resellers okay they buy the resellers buy from the resellers so again it’s another layer

that you need to think about how much do they pay we’re going to spend all of the uh meeting today on

the how much do they pay when do they pay remember the 122,000 or $1,000 a

month do they pay net 90 80 cash on hand makes a huge difference

on the amounts of money you need okay um how do they

pay can they pay on the website with a credit card do they need to to call you

on the phone do they have to talk to a Salesman see out of these very very

simple questions make you start thinking which is why I like to convert this

model from here that is very very nice but I think is not well understood to something like that and everyone one of

those answers had to be embedded in the model that you put in the spreadsheet

because it has an impact okay now we go to a book that I do recommend uh it’s called the innovators

dilemma and it’s a deep and revealing and we’ll read this analysis of why highly successful and trench companies

miss new emerging Technologies and Trends and lose market share to new offsets basically you look

around and you can see companies come and companies go we now just just now

see Nvidia right flying through the roof and Intel is not

why why did Intel lose the cell phone market why are they losing now the

server Market are they idiots they don’t know what they’re doing

so Clayton Christensen I think is one of the smartest guys in

business he started with the assumption that successful companies are not successful companies because they’re

idiots so he asked a simple question if they’re not idiots and I see it

repeatedly that companies lose markets to upst starts and they are not idiots

okay they know what they’re doing why does it happen in one of the following lectures

I will give a much more detailed uh explanation but meanwhile let’s talk a

little bit about it he looked at the hard disc market and the reason was that

within a span of 20 years there were about five or six Generations every generation was a new

set of companies so it’s like the uh fruit flies in genetic research which means

you see generation after generation very quick timeline and you can ask the same question and see the answer so that was

his uh fruit fly but later on he moved it and looked at other Industries as

well um would Tesla beat the rest of the car industry we don’t

know is Intel out of the game is NVIDIA going to take over we don’t know since

reading books is tedious I checked last night and indeed there are tons of

lectures by uh this guy was born in 52 died in 2020 out of cancer unfortunately

was living in Boston he was a Mormon uh there’s a huge Mormon church

in Boston uh if anybody went there you will see it it’s on the top of the hill with a huge uh statue on the on the

roof and he did his uh Masters and PhD in Harvard he was a professor at Harvard

and very very successful second book is called if there is a dilemma there is a solution

right so the author identifi ifies the forces that cause managers to make bad decisions as they package and shape new

ideas and offer new Frameworks to help create the right conditions the more this book if you

want and your English is not as good as others this one was translated I found

it but it seems like I only found the picture I don’t know that the books are available but there is a translation of

the book if you want and this is a book I want to talk about as well so I will talk later on in

in different lectures on the innovators dilemma and competing against

luck and competing against luck I will read it because I think it’s important what it says in here after years of

research Christensen and his co-authors have come to one critical conclusion our L held Maxim that

understanding the customer is the Crux of innovation is wrong okay understanding the customer is

wrong think about it okay customers don’t buy products or Services customers

they hire them to do a job understanding customers does not

drive Innovation success he argues understanding customer jobs does the

jobs to be done approach can be seen today in some of the world’s most respected companies I’ll bring one

example or several examples at the end okay this is a really good book worth reading again for an hour you can just

go on the web listen to a lecture we’ll get all the information that you need

bear in mind most of these books could have been an article but nobody would buy an article

so they have to write a book but if you listen to the lecture you get the article and the book in an hour so and

that’s a free advice I’m not making money out of it yeah the problem is that people like me who made all the mistakes

appreciate what he writes Young people read the book ah what does he

know you need to have the scars on your back to say yeah he’s right he’s on to

something okay now let’s focus on what I wanted to talk about in this meeting

pricing okay how do companies or service providers set their

prices okay so you guys come up with a great idea disruptive Innovative

whatever you want to call it idea you want to go to the market and now you need to tell customers or

prospects it’s going to cost you how much right how do you decide what is the

price that’s the main question I want to bring up in this

meeting so first thing to understand is that

price is essentially an obstruction it’s some sort of an obstruction okay in the

all day is we exchanged I had a little lamb you had a

bananas and I saw that bananas are better than a lamb I gave you the lamb I took the bananas and we were happy well

obviously for that I need either a lamb or bananas so people invented

money but how much money is a lamb worth and how much money the banana is worth

is a really good question and it becomes much more complex as we move up to more sophisticated things

so they all use and need some frame of

reference okay and that’s really really critical and I explain to you

why so most people have a very very

strong intuition that there’s price elasticity if I ask only for a dollar

I’ll sell much more than if I ask for $10 and if I ask for $10 I’ll I’ll sell much more than

$100 it’s so entrenched that is hard even to convince people that it’s

wrong what I’m trying to tell you in the next 45 minutes or so is convince you

that this is wrong it’s totally

wrong price is in the eye of the beholder like Beauty and you have to think about it as

something malleable that you can position yourself and change it if you’re smart

enough so what is the frame of reference that people use so the first and most

obvious one is if there are similar products like that in the market so there is a frame of reference right

there you know if I come to you and I say this shirt I sell it to you for

$200 you will immediately say wait a minute you know I can buy a shirt like that exactly like that for 20 $ so

what’s the difference tell me exactly why do you want $180 more right and I’ll say oh you know this is from a special

fabric blah blah blah so when I say same up or down it’s really really

critical If the product you want to put to the market has already a clear frame

of reference and we will I’ll show you examples later on then you need to decide what your strategy is do you want

to be more expensive than your competitor

and position yourself as a premium do you want to be cheaper and say I am the value projector okay or do

you want to be the same each one of those is a very valid position but you need to think about

it based on the value it brings to customers right so we always on value we

think B2B because most people don’t calculate value but that’s not true

think about Corona vaccination okay people were scared to

they were willing to pay whatever it is to get the vaccination right why because they didn’t want to

die as simple as that that’s a high value not to die so they were willing to pay if I’m God forbid you have a disease

and there is a procedure that cost a half a million dollars you know you start with uh you know raising money or

whatever so companies know that and they can advantage of

it you can take a different approach you say all I want is to pay the bills and make some money

so if my bills are 100,000 a month and I sell a th000 units so I need more than a

100 that’s what I charge sometimes and we talked about it

last time you say if it cost me $10 to produce I need at least twice as much

probably five times as much that’s the price so I’m just showing you the frame of reference that we talked before okay

sometimes the price is regulated okay taxi cabs milk eggs in

Israel whatever in every country there are some sectors that are regulated so the price is not fixed by you it’s done

by somebody else and obviously the last one is I’m going to charge as much as customers are

willing to pay how do I know how much they are willing to pay I’ll try I’ll try with a million dollar nobody bought

I go down to a half really nobody want until I get to a dollar and somebody took it for me

right but how do you put the prices so they can be based on market

segments pay different prices okay so depending and I will show

you a million examples soon how different marketplaces will pay market

segments sorry will pay different prices for basically the same product or

service okay which tells you right away there is no real

price for the product or the service it’s what this specific Market segment

or customer is willing to pay and the second is

positioning what is the message you sent out to the

market okay if you try to sell perfumes

and you sell the perfume for $5 a little bottle I can assure you nobody’s going

to buy it but it’s cheaper than everything else that’s exactly the

problem that’s exactly the problem you send a message that you’re going to insult your

lover or wife if you bring her that it has to cost at least $200 for a small bottle now you really show how much you

love her positioning okay I’ll bring clear

example cars why cars because it’s the same company so Toyota has Laxus as the

premium Nissan has Infinity Honda has Acura but why did they separate that

into two different companies that if you didn’t know that Toyota and Lexus are

the same you wouldn’t know because they wanted to completely separate the user

experience they have different showrooms okay you go to a Lexus

showroom and the first thing they do is you sit there at the lounge they bring you tea even without your daughter

around they uh you know give you cookies and it looks really nice and clean and

you know and if you go to a Toyota dealership they kind of look at you and say ah how can I help you you know

that’s the difference right when you want to do the uh service they said don’t worry sir we’ll come and pick up

the car we’ll leave you with addition with another car for you to use the and we’re going we swap them because it’s a

Lexus and not a Toyota okay so companies make this very different positioning

very visible for

example you want to go out with your husband to the opening night to the theater and you want a new dress go to

the hairdresser and a makeup artist how much would you pay that many how much

would you pay for the last person liby how much would you

pay 10 thousand thousand shekels okay all right but obviously and I I’m very

fortunate now to have a daughter who is about to get married and I see the prices and I’m shocked because it’s like

okay this is for a wedding then everything is 10 times more expensive

right and again I’m not so why positioning right come on

it’s a bridal gown it’s a bridal this and a bridal that forget it okay how do lawyers charge I brought it up last time

but I want to give it a little bit twist this time what makes the most sense is by the

hour right I bring you my time to help you so

I charge thousand shekels an hour 2,000 shekels an hour 500 Shekel whatever it

is that I you my time okay usually with lawyers you pay by the minute and

therefore I ask them not to tell me jokes because these are the most expensive jokes ever so please let’s get

down to business and just focus okay so many many lawyers would charge by the

hour but then there is retainer what is retainer retainer basically said I want

to get a discount because I’m willing to guarantee to you that I will take 10 hours of your time every month so for

these hours I want 20% discount but I will pay you even if you didn’t use them okay so that’s retainer still very very

close to by the hour by project why because these are routine things notary

filings to all of these things they charge you why because they know it takes 10 minutes and they cannot tell

you okay I’m going to charge you 10 minutes and $25 or shekels so they take a fixed price it looks okay basically is

a high de price based on the time because they don’t even do it the have a helper who goes and does it the

secretary this is where I start getting really angry so percent of the

deal is the lawyer working harder if I sell an apartment for 2 million or 5

million no has exactly the same work but somehow they were able to get everybody

to pay a percent of the deal it’s even worse when you get to m&a transactions

right if I sell if I sold Zoom for 100 million or 200 million or 500 million it’s the

same exact work believe me not a single hour more but they get a percent of the

deal why because they could so that’s a positioning issue again I show you that

the value is the same the prices are very very different and this is even the most

Innovative one is they don’t want you anything they say we will do all the work okay we’re going to run after this

company and five class actions and whatever and if we are successful we

want 30% 40% of the bounty of what we do if it’s not a class section it’s called

ambulance Chaser right they see an accident they run after the the

guy so you see how creative the same exact product hours of a lawyer are

being charged again I’m trying to shake the

notion that you have that the lower the price the better are we are it’s not

true just not true and if you haven’t yet understood

it I’ll get to it later charge High very high why much easier to be

profitable okay so your job is to figure out how to charge High not to comp r on

price okay how do then disch charge by procedure annual

checkup fillings root canals Etc why don’t they charge when the

patient suffers a lot of pain you walk into them say I’m dying you know you have to do something right away okay for

you 10,000 shekel why don’t they do that I’ve proven you that it’s the same work right that’s not the point in my

mind the issue is it feels horrible because a person walks in with pain and

you start kind of negotiating so I think that that’s the only reason this example

just shows you again and again that prices are

elastic and you will see more examples really something that will make you think again about

pricing so let’s take the most simple commodity coffee okay so this is the

shuer Sal coffee and I highlighted 775

per 100 gr so this is the elite one and if you look on the boxes somebody made a point

of trying to tell you it’s basically the same coffee and I would believe that they buy the coffee from Elite and they

just put it in a box like that but this is Elite so you pay

$9.95 $2 more two shekels more right

this one is exactly the same as the previous one just

less so now you pay 20 shekels not 9.95

not 10 shekels twice as much why because this is one of the finest

ideas ever if you feel that you really can’t you know waste coffee right you

don’t want to buy uh this is about 100 no 300 gram I think 200 Gr it says 200

gram I only need some for travel right so I’m not going to buy this so you pay

twice as much in order to be frugal okay again Market segment I’m

trying to show you again that this idea very deep idea of market

segments then this smart Alex davidof decided that they’re going to present it

in a nicer uh bottle and they charge 2490 and and the cafe

Joe uh tablets 55 gram it’s 30

shekels same exact product prices four times as

much why because we all buy it if you can

charge more it doesn’t cost them even close to this number for producing that so the

cost of I know but the cost of the ingredients in virtually all of these products is

almost no not relevant that’s the scary part if you look at the cost of the

material in the foods you buy it’s the smallest part of it everything else is the positioning

the advertising The Branding the whatever you pay for them to pay to sell to you but let’s move on because I have

many more examples that will convince you that price is elastic Mal and you

should think a lot about the frame of reference remember what I said frame of

reference is what dictates how much people are willing to pay okay so this is a TV cost 569 .99

shekels $99 or in simple Hebrew

$570 but you see again see that we all fall for it right even

though it’s one penny we all fall for it again so I’ll tell you the

story when we arrived in the US uh we were very blessed we had two

kids and we needed to buy some furniture uh beds for the kids and there

is not far from Boston about an hour out of Boston a city called Gardner which

used to be the center of uh Furniture in the Boston area so we drive there we go

to see furniture it’s boring so I tell my wife keep looking and I started wandering along

the street and very quickly I realized that this is delapidated neighborhood very poor

neighborhood so I walked the along the street and I see a pawn shop you know what a pawn shop is I never seen a pawn

shop in Boston and then I see a store it’s called Furniture Rental rent

a TV this is a real advertising from the web

from a week ago so people don’t have money they don’t have

$570 to buy the TV so they rent it if they kept it week after week they

would have paid

2,367 so we always think that higher prices are for the rich

people the answer is rich people pay the least amount of

money that’s the reality I don’t pay in the bank at

all why because I have enough money in the bank I don’t have to pay anything many of you have to pay in the bank why

because you don’t have enough money right doesn’t make any sense

it’s not fair well for me it’s know it’s not a lot of money in the bank but this is

scary I really got a shock when I walked into that store and I looked at the prices same thing about

groceries more established people have a car they go to the big

stores and they buy the big quantities and they pay very little poor people

don’t have a car they pay a lot of money for everything it’s just breaking your

heart so think again about it that prices when I say positioning the price it’s not always that the people who can

pay more pay more it’s many times the opposite okay let’s talk a little bit

about this and we’ll take a break in a few minutes airline tickets so they have

a problem they know that business people will be willing to pay more money

than tourists but it’s kind of very much like the dentist you try to buy a ticket and

say are you a businessman you travel for business oh it’s twice as expensive as we say inish pish no you

know you can’t really do that so how do you differentiate between business

travel and tourist travel I’m talking now the US okay well they found the

trick what happens with business travel

business travel people travel a lot especially if you’re a consultant in you know uh mackinzie or something like that

you have customers all over so Sunday night you hop on a plane you go to where

your customer is check into the hotel Monday morning you are at their offices you work till Thursday afternoon you hop

on a plane you go home you are at home on Friday Saturday Sunday your wife is happy you bring a good salary everybody

is happy so you don’t want to stay over the weekend because you have a

family aha the Hallmark of business people is they don’t want to stay over

the weekend boom prices go up now there is a problem who pays for

the ticket the company who travels the

person so how do you make sure that the person is not going to be sensitive to

the price what do you do clubs points exactly who gets the

points Only The Traveler not the person who paid right so the whole idea about

the points was okay you pay a lot more actually a company pays a lot more but

you’re going to be very loyal to me because you collect points that you can use not the

company user who pays remember I’m trying to take a lot of

examp examples and break them down to show you the Dynamics of how these things

work and you as companies as entrepreneurs one who take advantage of it

okay internet access businesses are willing to pay

more so what do you do with that well I have to tell you we are a

company and they wanted to charge us more so what do they do they guarantee

an uninterrupted service most of us who use now fiber optics at home we get uninterrupted service or

basically we get the same Interruption as you get in your business there’s no difference it’s the same line but here’s what they do they don’t

offer residential plans to business addresses so AI is laughing because we

said okay don’t worry about it just give me the whatever you can give me and we live with a res small residential one

but yeah they wanted 2,000 shekels a month we pay 100 and something shekel a month because I was I refuse to be the

business who can pay more what and that will be the last

thing before we take a break I want to give you some questions the flight is about to leave

in two hours those who didn’t buy a ticket

these tickets are wasted right once the flight takes off you can’t sell tickets

anymore so should the airline offer half price tickets to lure customers what do you think so here’s

how it was kind of resolved so I’m sure you are aware in

Israel you can have like last minute flights right so there are companies that basically collect all of these last

minute flights and people show up I don’t know now but I remember before people would show up at the airport they

had a suitcase ready they didn’t know where they’re flying even okay but the moment there was was like a $50 ticket

to Athens boom they were there they were going on the flight because $50 is

something you have to do but let’s take it this way the day before the

flight now I’m not talking about two hours the day before should the price go up or go down or not change the day

before they know it’s not a tourist anymore see two hours before it’s not a businessman because it’s kind of last

minute crazy but the day before it’s not a it’s not a tourist tourists play ahead

so yes the prices go up these are people that have to go same product same everything

different Market segment it’s 9:00 p.m. your hotel has available rooms would you offer last minute half price rates I

don’t know the answer I’ve seen this way and that way I’ve seen hotels that reduce the price I’ve seen hotels that

don’t I don’t know 10:00 a.m. 10 p.m. your Supermarket will close in 2 hours

would you offer big discounts on perishable produce well I don’t know if you’re aware of it but there is a

company actually that does have an agreement with restaurants and other places that

they come to the restaurant they collect the stuff and they ship it to you you don’t know what you’re going to get okay

it’s just whatever is left over before the the uh restaurant closes and you pay

50% yeah in Israel yeah an app as well there is what there is an app as well

yeah exactly so again same food different Market segment okay let’s take

a break and we will meet again at 4:30 so what I want to talk about now is

small decisions big impact so I want to show you how slight

changes in the business model that companies do can have tremendous effect and impact

on the market on customers and everything so we uh moved to Boston to the US in

1989 at that time uh cell phones were pretty entr trenched in Israel uh

everybody had a cell phone and when I show up in the US um and you ask somebody what’s your

phone number they don’t give you the cell phone number and most people did not have a

cell phone so I was kind of shocked by why so the US is a pretty sophisticated

country at least as much as Israel Europe you know Nokia from Finland big

uh technological engine for Europe right far out so what’s the difference why and

here’s what I found when you call from a landline to a

cell phone there there is a connection if you now have a bezic phone at home

and you call cell phones you see there is a special price for connection and the same goes between cell phone

carriers in Israel and in Europe there are special area codes so I know that if I dial 05 I’m

calling a cell phone um in the US you don’t my cell

phone number is 61751 6996 you can call it I don’t have it anymore know so you can call it um so

in the US phone companies had a hard time figuring out when they have to pay

a connection fee to a cell carrier so what did they do they

moved the price to the in to the carrier

which means if you have a cell phone if somebody calls you then and you pay the

connection fee you pay for the minutes now let’s think about it so I

have a cell phone and somebody says can I have your a phone number what are the chances I’m going to give you the phone

number because I know if you’re going to call me and start talking to me about your great idea and that they sell

insurance and what have you it’s not enough that they bother you you have to pay for

it it’s bad enough that you have to very politely say I’m sorry but I’m not really interested no no you have to

listen to me no I don’t want to listen to you right especially not that I pay per minute so what people did is they

only gave the cell phone number to close family members so nobody called them

close family members usually don’t call you so why do you need a cell phone so

there were no cell phones literally okay

and so what happened is that until they started changing the regulation and everything

cell phones were way behind Europe and Israel so here’s a very simple thing I

didn’t I wasn’t aware about the area code and the connection I just thought that why is that that you pay for incoming calls only later on I I found

out this explanation but this is a small decision that made a huge difference in

the pace by which cell phone numbers that’s also the reason why in Europe and

the rest of the world GSM everybody agreed on a standard because it was very popular and GSM became the popular

number in America there were like three or four different Technologies because they were Islands kind of they didn’t

think about it so that’s one

example now phone bills I like the phone system and the communication because

it’s something that is not tangible right so you can make decisions however you want so you can see the

decisions so cell phone bills used to be by the minute by the

distance when I arrived in the US if you made a call from Boston to New York it was one price if you call California it

was a very different price very high price any idea why distance made a

difference so let me take you a 100 years ago think about a 100 years ago yes you had to go and then they say

sir just a minute and they did this and then they moved to the next one sir just a minute right so really it was more

expensive expensive when it’s all goes through automatic exchanges it doesn’t make any difference but if I can charge

more why wouldn’t I charge more right

simple it’s really simple because people were used to pay by that one of the most profitable lines of

business for AT&T in the 90s 1990s you know what it was renting out the phones

the back phones for $10 months for old people who didn’t know that the world has changed so there were tens of

millions of people who paid rent for these very old PHS because they got it

in the bill every month and they paid it so yes that’s the way to make money

connection fee international calls that’s why amdoc became a big

company because it’s so complex to figure out how much you pay per call that MDU had Legions of people writing

code to calculate this what happened today flat fee per months fair use

including plenty of internet connection right nobody here pays per call nobody

here pays per distance nobody here pays for anything why because it’s much simpler and

therefore the use go went through the roof okay because you don’t have to think about it

anymore so when you build a business model a pricing moral one of the things

that my CFO told me was never ever make people have to think

before they click on something because the moment they think before they click on something you lost the customer so we

were selling data I zoom in for I think it was the competition that once one

company did it and people said that’s what I want because it’s simple I don’t have to think it’s all included you know

that’s why people like to go on vacations all included right CU I don’t have to think there is a change in

technology but and we will get to it in a moment you will see what the questions are okay so cell phone International

packages they are not anymore like that right so you pay per gigabyte you pay

for a lot of things why mainly because they can so I don’t think that uh the

cell phone companies when they create an international package pay more but they

get us at a time when we have no choice because we want to keep the phone number right that’s why people do these

programs they want the phone numbers so if you people want to call them they can reach them so they can do it

okay so let’s go on to additional things SMS messages small cost per message now

included in the personal use right simple WhatsApp messages are free but

how do they make money when WhatsApp was acquired they had like I don’t know 20 employees or something like that and 400

million users it’s a amazing story and Facebook

wanted to buy them because anybody who has 400 million users is a threat regardless of what they do okay so they

needed to take them out of the market and so they were willing to pay $18

billion to buy them and WhatsApp didn’t want to get bought because they were

very happy they had a lot of VC money that 400 million users mainly not in the

US by the way even today WhatsApp is not very big in the

US so they had a a condition for the purchase the condition was no

advertising and no change in the business model which is why you don’t see

advertising on WhatsApp they started making money recently when they realized

that a lot of companies want to use WhatsApp for Comm communication with customers so you now go you get a lot of

companies that tell you if you want to talk to us use WhatsApp and that’s how we communicate and that cost money if

you want to send messages for uh Tik ch right how much cost a

uh no WhatsApp it’s very

expensive then go right so so that’s how they make money now but

that took them a long long long time before they started making money email service on the other hand is

free now think about the following what if it wasn’t free let’s say it was just um fraction

of a scent per email how many spam messages would we

get well I was in the midst of because we were selling email addresses at Zoom info right so we were at the center of

the storm about spam and I never understood why email is

free because free means abuse right if it’s free I’m going to abuse it I don’t

care I will send two million emails 10 million emails 100 million emails I don’t care that I get

0.001% open rate so I send a billion emails if they were charging even a

small fraction of a penny that would stop internet connection used to be by

connect time and megabyte transferred if it was not priced as a

flat fee would the world look the

same think about it if you had to pay per

hour all of these companies would look very very differently so small decisions why at

the beginning we had to pay per NE time why did it change to your question

technology allowed it but the technology is expensive so what happened what is net

neutrality anybody knows what net neutrality means okay so net neutrality is a rule

of the internet that says we all treated the same if nobody

pays per megabyte I don’t pay for megabyte if everybody pays by megabyte I’ll pay

by megabyte why because the carriers said I

don’t know like 60 70% of the traffic that we have to support comes from these

companies five or six companies they said these companies have

to pay the bill we carry them on our shoulders it doesn’t make any sense we don’t want the

users to pay they have to pay there’s a huge fight in the US over

this net neutrality it looks so you know obscure net neutrality but this is really the core of the issue it cost

money yeah it cost money to produce all of these things and there are very few companies that produce most of the

traffic okay still right now net neutrality still holds and they don’t

pay anything additional but who knows it might change and somebody the people who SP spend the

money should pay the money don’t worry it will come back to us so Netflix will

become more expensive and YouTube will blah blah blah okay so let’s go back to the

pricing model so until now I told you about everything everybody else in the

world but let’s go back to us so we want to be profitable right want to be fast

growing and modest investment so I’ll tell you a secret but

please don’t tell it to anybody it’s much easier to be profitable if you

charge high prices don’t tell it to anybody but high

prices generate a lot more money than low prices so when we work with companies we

always tell them try to figure out the positioning

and the market segments that will allow you to sell at a high price because you will make a lot

more money money what is the problem I’ll get to it

it’s much harder to build successful companies by competing on price okay if there is a price and you

try to compete on The Price is the only competition you do it’s extremely

difficult very very difficult so don’t even try it and there’s not so much price

elasticity as you think it is much more effective and efficient to look for

a market segment that are willing to pay high prices provided you position the

product and the service correctly now what is the problem with

that the problem is that once you position the company at a certain point

and I said at the beginning of the lecture very very hard later on to

change it so if you charge High and a

competitor comes in at a low price it’s tremendous pressure so you have to think

about what am I going to do about a competitor that will come in at a price below me at a product that keeps

improving we’ve seen that at zoom in for many many times so we came in very high

why because I follow my own advice uh so so if you try to follow your own advice

you start charging very high prices right um and then we wanted to offer a

lower-end product that can be sold by e-commerce remember the how people pay

right that I put at the beginning so we sold to salespeople you wanted to buy

Zoom info you had to call they talk to a Salesman we had like a $55,000 minimum

we wanted to sell maybe like $20,000 minimum that was the DI dialog people wanted a $99

something and every time I tried to introduce a $99 something I had tremendous amount of

resistance from whom from the

salespeople why because they said wait a minute you know I work with a customer on a $5,000 deal and they said wait a

minute you know I went on your website and there’s a product for $999 let me try it first and see if it will be

enough for what I need and so the salese came to me and he says if you want to hold us to quars

take this off the the site I tried five

times that means I failed in the first four actually I failed all of

them I was never able to introduce a low end

product so it’s not easy but I strongly recommend go high but think what do you

differentiate and make sure that you have an answer for the low end of the

market in that case in that case yes but you have to understand your own business

but don’t fool yourself there will be a competition from the low end and you want to understand you don’t have to

execute it right away but you need to already create some sort of a separation that you can have an answer for the

competition okay in every company it looks different I’ll give you examples in a moment how they did it okay but

this is really really critical so go high find the market

segment that will pay it find the positioning that will hold it but be

aware that competition will come and that you want to have an answer maybe a year from now two years from now three

years from now doesn’t matter it will come here’s a good example you have

individual users and you have business users we said it many many times in the

presentation businesses are willing to pay more money individuals are stingy

they don’t want to pay more how do you differentiate so we talked about the airline tickets and we showed you how

they did it but let’s look at some companies that I think did a fabulous job and again I bring it as an

example Zo Zoom communication that’s not zoom info that’s the zoom we all use for video conferencing okay so what they did

which I think was brilliant if you are a user an individual User it’s

free God was with them and with the Corona and when the corona broke up they

were there and they became like the brand name right let’s have a zoom call even if you do it through Google meeting

or whatever it’s a zoom call right so they conquer the market with zoom but also because they had a good product and

it was free businesses on the other hand started 1250 most of us pay more I don’t

remember how much we pay but we pay more but what’s the trick how did they

differentiate and they differentiate by the call times out after 40 minutes that

sounds like stupid what’s the problem so I’ll call again right

positioning right I’m a big company I’m trying to sell you something for $10,000 but I don’t have the money to pay

Zoom you can’t afford you know you look like an idiot

so the beauty of what I’m saying in here because the alternatives are very well

known and I think stink the alternatives are I’ll give you it for a two weeks trial I don’t try anything because if I

like it I get stuck after the two weeks if I wasted time why do I want to do two weeks trial doesn’t make any sense to me

either you give it to me or don’t give it to me right okay you can do 10 transactions a month I don’t like all of

that I don’t want boundaries around me this is not a boundary right nobody really cares if I call my daughter and

after 40 minutes I say okay I’ll call you again bom it’s not an issue even right it doesn’t bother it doesn’t stop

us but psychologically companies can’t do that and individuals don’t care that’s why I

said this is genius so when you try to differentiate markets you really have to be smart

that’s why I bring these examples because the obvious ones are the obvious and usually they don’t work well they

bother people let’s stick with another one Monday individual free business $9 a

month what the trick the trick is they give you by the number of fuses so

supposedly two uses when doing just for yourself is like you know having a monologue you know what the joke about

the monologue in dialogue remember that it’s an old old joke a monologue is one person talking

to himself dialogue is two people talking to themselves so not my joke so anyway

the Monday allows you to do two people talking to themselves and obviously at companies

you need more than two seats and that’s how they differentiate slack individual free

business again very low kind of price per user but the trick is

history the point is very very important people in companies W the history that’s

basically their record of what’s going on so they keep everything in this in

the history so having a 90day history is a huge handicap for companies it doesn’t

bother people so much okay so you see in here how each one of these companies my

favorite is the zoom communication because I think it’s so smart that such a subtle change made a big difference so

the price of anything is always within a frame of reference and in the context of

something keep saying the same thing in different words in different positioning but I say the same thing price is

nothing god-given okay price is something that is always

related to something else related to who you talk to related to what they do related to what you do

it’s always related to something and the positioning and the

pricing are closely clinked so what you create in here is a

two-way communication between your price and your

positioning so let me tell you a story and thank thanks to teila who gave it me

the story the beers so the diamond

industry until the 19th the end of the 19th century diamonds were very rare

they had a few gold few diamond mines in India very few diamonds reached the

market nobody cared about it late 19th century

discovered huge deposits of diamonds in South Africa afca South Africa was part

of the Britain Great Britain so British entrepreneurs or investors started to

invest there and they had many mines and they started taking large quantities of

diamonds the only problem is what do you do with diamonds nothing right what do you do

with diamonds nobody eats them for breakfast nobody needs them so prices

went plummeted but they were smart they were all British and they figured out they’re

going to lose their shirt so they came together all of these investors and created a cartel the name of the cartel

is the beers why because South Africa was also Dutch so I don’t know where the name the

beers came but they created a cartel and the first thing they did is they made sure no diamond was sold out of the

cartel even today virtually all the diamonds go through the beers okay okay so they controlled

Supply that was the beginning but what do you do with

diamonds so in 1938 they went to an advertising agency

I don’t remember the name of it and they said how do we create a demand for

diamonds so they came up with an interesting idea but before that I want to ask a question in here for those of

you who are married please those of you who didn’t give an engagement drink to their wife

or a wife who didn’t get an engagement drink please raise your hand you didn’t give a diamond out of

here shame on you look at that you see so they came up with this brilliant

idea that engagement rings are what you do for engagement an

engagement rings has to be with a diamond guaranteeing

demand okay now how much should you invest in

the diamond in the ring so that’s very late and I became

aware of it only a few years ago when I was still in the US when somebody told

me well you don’t know it has to be at least three three salaries good you see I’m

not inventing it three salaries which can be a lot of money so if you don’t

spend three salaries on your engagement ring you don’t appreciate your wife and

you don’t want to be look like you are stingy on your wife that’s the last thing you want

right so very good but how much is it really worth

so here’s the catch if you go back to the store and

you say I want to you know I got divorced I got back my diamond rings three three salaries is a lot of money

here’s my diamond ring can you please give me the money back now the stores make about 50% or even

more on the diamond so they have zero reason to buy it from you at full price

so they would at best pay you what they paid for the diamond which means you paid let’s say $20,000 you’re going to

get $10,000 you’re pretty pissed off because everybody told you the diamonds keep their

value but they don’t how do you deal with that these

bastards are smart as hell diamonds are forever right don’t ever give them out

don’t ever give give them back they are forever you get them you hold on to them

because they always keep their value so keep them for bad

times it’s the biggest positioning pricing idea

ever the reason I tell you this story is again to try to have you understand how

price positioning and market segments are all tied together the market segment

here is one engagement rings it’s the only Market

segment but they built a huge business out of this Market segment what is this building anybody

can guess church church another

guess church right obvious Church why you

Church okay why would a Williamsburg Savings Bank look like a church the

church you go and in church there’s somebody you can really trust God Right

In God We Trust I go to the church because I trust God I go to the bank I

want to put my money my last penny in the bank I need to trust the bank so the best way to convey to you

that you can trust me is to look like a

church if you go in New York and you walk into any of the highrise Office

Buildings they all look like basically temples right the Temple of power the

Temple of Rich the Temple of something they make sure you stand there and you like open your mouth and you say oh my

God so much money went in here why because it creates trust it conveys

power so that’s

positioning what are these watches what else anything else

what are these single

function all right well all of you failed because remember I mentioned

before jobs to be done so if we don’t look at the as

watches but we look at the job that people wear these watches then the

answer is Trivial so the first one is

Rolex it has nothing to do with time it has to do with position positioning I can spend

$20,000 on having a stupid watch that means I probably have $2

million because I don’t care about the $20,000 it’s small money right conveys a

message the second watch is a Swatch what job does that

feel accessory right it’s my clothing you know it’s part of my

Decor the third one is an Apple Watch what does that fulfill what job is the

Apple watch gget you know if I’m a gudget freak I will go with that I’m not a gget

freak or is it it’s not okay I am on the fourth

category the fourth category is the timx one the people who say all I want is to

know what time is it I’ll pay $30 and I’m done so this is really important

because here’s the first example of jobs to be done what I’m trying to do in here in

that’s preparation for the next or the second next presentation about jobs to

be done if you stop looking at it as what it is and you start looking at why

people use it what is the purpose what’s the job they’re trying to accomplish you

get a very very different Market segmentation utterly different why would

anybody pay $20,000 for something they can buy for 30 that’s exactly the same

thing shows you the hour right because the job is different it’s not the same job it has nothing to do with the watch

the job is to show I can spend $20,000 or the job is I’m Frugal that’s the job okay so you can

start seeing in here that the same exact instrument the same exact product has

very very different jobs to be done another example that he brings in the book is olive

oil olive oil what can be different about olive oil he says because olive oil is just

the product but what do you try to do and then you realize some people use it in order to prepare the surface so it

won’t be sticky some people put it in salad which is a totally different

job some people frying it right each one of them is a very very different job so

when I go to the Super my wife says can you bring the spray why because she

wants to use it so it won’t be sticky and it’s very very different than the olive oil she uses is for the

salad so these are examples of jobs to be done it’s a it’s olive oil it’s olive oil yeah

until they put it in a spray my wife used it with this I just put it there

think about it then you will realize at the end of the day it’s olive oil packaged differently for a different

purpose jobs to be done that’s all okay um talk a little bit about the

product that we showed last time

Kos the bottle that boils water in 3 minutes if you really want to see the

YouTube again I won’t show it now it’s really nice and the sold 1,300 units on

Kickstarter for $89 a unit remember we’re talking about

pricing so is that the real price stop laughing because you know the

answer okay so there are turns out

competitors if you start thinking about it not as a product but as jobs to be done you will realize there are

competitors and the first time I showed it to D said no they’re not competing with us because they do this we do that

and I said they are competing on the jobs to be done so five best heated coffeee mugs in

2024 to keep your drink at the perfect temperature so it turns out there’s not one competitor or two competitor five at

least okay and let’s look at one next mug 14 o cost $99 $100 okay that’s after

a discount okay used to be1 130 then there is

Amber am Drinker this one cost a little bit better

$200 so suddenly the $89.99 doesn’t look so interesting right and you say well

they tried to sell it for this but they probably failed right so let’s look at it so Ember ranks amongst the fastest

growing companies in America joins the Inc 5000 brand makes waves in the

consumer tech industry After experiencing cagi the compounded annual growth rate of nearly 6 % in the last

few years right

positioning here are the results so they make money they can spend money on

creating marketing and branding at $89 when the unit itself cost probably $50

to produce it’s not very interesting because 89 is to the consumer all the channels in between will eat everything

okay so you see a great example of thinking through it

so now we go back and I said to you at the beginning we’re going to show you why branding first allows you to do

things before you even develop the product so just for a fair disclosure they are in the middle of developing the

product and then came the bad guy me and said what are you doing guys are you nuts we first have to sell it we don’t

want we don’t know who to we sell it to we don’t know the price so why are we developing it even so we started

looking so we came up with market segments the first one that came again

and again it’s two different market segments but basically the same jobs to

be done is if we want to make sure that the water is clear of any contamination by

microbes or whatever okay so the best thing to do is boil it the the oldest

process that we use today that’s by the way the reason why a lot of um cultures

use something that has to do with boiling water so beer for example came because you have to brew it and it kills

all the microbes mothers who need to make formula for their babies I came up

with another thing and they killed me and I said what about mothers who pump and freeze it and then needs to defrost

in and warm it up and they say ah small Market this is a much bigger Market they

want to you know just take the formula put it in boiling in boiled water and

rest assur that their baby is not going to be infected second which is the same exact

jobs to be done but a totally different situation is Travelers who go to Exotic

countries when need to boil the water you go to India you don’t want to drink water you just want to make sure that it’s boiled before for them right and

you want to make sure that you can do it at any point you’re not dependent on anybody you take water you boil it in

Kos and you’re gay truck drivers mountain bike riders the reason I choose

those two is because these guys are crazy they spend tens of thousands of dollars on their gear so what is another

$300 for hot water on the slopes or whatever right so that was the

logic so for each market segment we want to test three landing pages at three

price points 99 19 199 and 299 at the minimum we want to see what is the price

elasticity needless to say that if we realize that 10% less people fewer

people buy this instead of that we still make three times as much money right

that’s algebra so clearly we want to test what is the price elasticity and

try to get that most people will buy it here because because 299 must be a good product 99 I don’t know it’s Chinese

probably right so prices send a message remember the church in the

bank price sent the same message perfume for $5 and perfume for

$500 must be a hundred times better must be right otherwise you wouldn’t charge

$500 prices send a message so we want to test two things at

once we want to go to Google and try to put ads for mothers with a formula and

traveler to India and whatever and see what we get and what we’re going to see are two things number one which message

resonates do we see more mothers clicking or more travelers to India or more bikers so we have to play with the

ads we have to play with the cost of you the cic the customer acquisition cost

and of course the price point the main point I’m trying to make

is none of that requires any product you can demo the product you click in here

it does that you click here it does that everything is working except it’s not a product but it demonstrates what it

does here we have a

demo right to get the f you need you don’t

need a product and remember what you’re going to do and what we’re going to find out um can I tell about what we did with

your product okay so we work with Iran and his

company and they have this sophisticated tool that connects to your accounting

system into to the banks and collects a lot of information about your company and creates

reports so they had a plan to go about credit risk and all of that stuff I

looked at it and I said sorry but doesn’t make a lot of sense but the reports look nice how

about we don’t try to guess let’s go show the report to customers and ask them what do they see you know we

collect all the data from the banks from their accounting system we make sense of it and we create reports let’s see what

the customers do with it so aan goes and talks to some customers and he comes

back to me and he says I showed it to five customers and there was one thing that they immediately zeroed

in it was their accounts receivable how much money people did not yet pay them

and it was in the hundreds of thousands of shekels that was outstanding out there

and was not yet uh being uh paid and it really bothered the hell out

of them when we when they saw the number they were all over it and I was it

because there are two things happening at that time number one we can offer a lot of help in how to collect and uh his

partner uh itar said well the best way to collect is to start collecting before it’s due because once it’s due you are

in but if you know like two weeks before you send them an email you say I sent you this info do you have it in your

system I hope you you know if you need any more documents blah blah blah blah blah a week before you say well you know

that it’s doing a week blah blah blah blah blah blah blah a day before you call them make sure you will collect

because you just NES right so you will collect and it’s huge help and what do

we do nothing it’s just a sequence of females right so we have a solution for it the second reason why we were why I

was at least elated price is always in the context of

something if I come to them and I say look I have all of these great reports for you it looks like and they say

uh-huh yeah very interesting and I say I want $5,000 a month for you they say uhhuh not

interested when he sees half a million shekel out there and I says I can solve

you this problem and I want 10,000 shekels you know to set it up and then

3,000 shekels a month he will say where do I sign I mean this is ridiculous so much money out there and I paid the bank

I don’t know how much money for you know to to finance that

cheaper than bully right price is in the context and the

best context is money okay look at how much money you can save because I just

calculated your accounts receivable okay so the issue here is you

really want to understand all of that before you spend the money to develop the product and produce all the molds

and everything and lock your yourself because maybe what they want is just to do something

else so here’s what they did the bastards two weeks ago when I went and

checked it and sent information to these guys this wasn’t on their website it came on their website maybe a week ago

or maybe yesterday I don’t know look at the price point

$400 just so that you don’t think I’m joking number one on our

side this was the number one market we wanted to test I was like I looked at it

and I couldn’t believe my eyes I said

wow exactly right it’s not a product it’s a system right it’s Ember baby

system bottle system you me and they also give you these which each one of them cost I don’t know a dollar or

whatever looks like a very heavy system right your

exactly so again it’s another example really on something that we were talking about here two weeks ago and you can see

why trying to think first of all branding

first then think about the product but after branding first I always say not

start thinking about your business model and your pricing and all of that do before you invest a penny in developing

your product because then it’s easy to do you know a pivot there’s no pivot actually you just

look for market segments and price points that make you

happy so intelly chain do we have still time

yeah so intelligent is another of our companies uh they’re not here because is

has Corona um so what they do here is is a

software I wanted him to give it you he was uh telling us two two lectures ago

so it’s softer for um demand uh prediction okay

so and his idea was uh there are systems like that for big companies they sell

for hundreds of thousands of dollars they’re complicated you need Consultants to implement

it how about if if we develop a small

product you know modern look and feel very smart and we position it at

$10,000 cuz that fry steak just can’t resist it they’re going to buy it like crazy

right and so he we started working with them and the first thing I told them is

if they sell it for hundreds of thousands of dollars why do you want to charge $10,000 it makes zero sense to me

that you know it sends a message of a bad product because when you go with a

low price like that in a market like this second I have a feeling that the

problem is not the price point at all I think the problem is that people don’t understand what you’re doing not just

you personally but the industry in general and they’re not going to buy anything because they don’t understand

what it does what’s jobs to be done they they just don’t okay the whole thing is too

sophisticated for them so so what what we’re going to do about

it so we looked at one another and I said you are a really really presentable

guy you know how to teach you have a Charisma why don’t we start doing

courses and in the courses we teach them why they need your product so they will pay

us to understand why they need your product they will respect it because they paid

for knowing why they need your product and you have to raise the price okay so we started doing courses and the courses

are going really really well we have a lot of companies in user already went through the courses right Gabby um

really positioning them as the uh by far the industry leaders in terms of

technology and understanding and then we sit one day about their sales and he says them oh

after that I do a proof of concept so we go to the customer we sit with them we take their data and we show them what we

can do for them that’s a proof of concept so how long does it take you to do the proof of

concept I don’t know about two weeks works you know something like that and said you do it all for free yes said let

me tell you if you do it for free nobody’s going to look at it because it’s not interesting so how about we package it as a Consulting

step First Step that will show you show them not why they need your P but how

much money they lose by not doing don’t you you know your product is on the side

it’s not relevant but just show them how much money they can save and make by using this

methodology so right now we have a course which they pay for we have we

call it value realization something like that I don’t remember the name we

finally chose for the package and we sell it for 10,000 I wanted to sell it for 10,000 they fought with me and they

at the end it’s 7200 I think so the course is like 3,000 so about $110,000

before we start selling and the product itself goes to about

$50,000 that’s the difference because the problem was not the price the

problem was not the product the problem was the market the they had no clue what we’re

talking about so it doesn’t matter what price we’re going to give them just doesn’t matter so that’s why you have to

do all of these things at the beginning to understand where your problem is or where the market problem is because if

you try to solve a problem that doesn’t exist in their minds nobody’s going to

buy okay I’m right on time