What ChatGPT has to say about pricing for product-led growth (PLG)
Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talent.
ChatGPT from Open.ai has been getting a lot of attention since its launch on November 30. If you have not tried it out we encourage you to do so, go to https://openai.com/blog/chatgpt/ for context and to get access.
There are many ways to use ChatGPT. It will answer questions, develop and debug code and explain complex Regular Expressions (RegEx). Carefully guided, it will even create whole new languages. See I Taught ChatGPT to Invent a Language and I am working on a collaborative novel with my granddaughter in which we are using ChatGPT as a co-author. ChatGPT is a window into the future of AI applications and AI human collaboration. Open.ai also provides Dall-E, one of the key content generation AIs discussed in Pricing AI Content Generation.
Ibbaka is also working on a general framework for pricing artificial intelligence and applications leveraging artificial intelligence that we will release before the end of the year. We are having ‘conversations’ with ChatGPT about pricing ChatGPT and other systems.
Let’s see what ChatGPT has to say about pricing for product-led growth.
What is product-led growth? (According to ChatGPT)
Product-led growth is a business strategy in which the primary focus is on developing and improving the product, with the goal of attracting and retaining customers. This approach differs from traditional marketing-led growth, where the primary focus is on promoting and selling the product, often through advertising and other forms of marketing. In product-led growth, the product itself is the primary driver of growth, with the goal of creating a product that is so useful and valuable to customers that they are willing to pay for it and continue using it over time. This approach often involves a heavy emphasis on product development and design, as well as user research and testing, in order to create a product that truly meets the needs and wants of customers. Product-led growth can be a successful strategy for companies in a wide range of industries, from software and technology to consumer products and services.
Comments: This is a pretty reasonable description. I accepted it and went on to my next question.
Can product-led growth and sales-led growth be combined?
Yes, product-led growth and sales-led growth can be combined. In fact, many successful companies use a combination of these two approaches to drive their business growth. In a product-led growth strategy, the focus is on creating a product that is so valuable and useful to customers that they are willing to pay for it and continue using it over time. This often involves a heavy emphasis on product development and design, as well as user research and testing, in order to create a product that truly meets the needs and wants of customers. In a sales-led growth strategy, the focus is on promoting and selling the product, often through advertising and other forms of marketing. This can be an effective way to generate immediate revenue and reach new customers. By combining these two approaches, companies can create a product that customers want and need, and then use marketing and sales efforts to reach those customers and drive growth.
Comment: This fails to really call out the differences between product-led growth and sales-led growth companies and the challenges or organizing to support both growth motions. As product-led growth companies evolve to solve more complex problems for larger companies they often need to layer in a sales function. Sales-led growth companies are looking for ways to adopt the best practices from product-led growth and have their products provide them with PQLs (Product Qualified Leads). These PQLs can come from both free trials and from how existing customers are using the product. In the latter case, the PQL is for up-sell and cross-sell.
How should I price for product-led growth?
Pricing for product-led growth can be a complex and nuanced decision, as it depends on a variety of factors such as the target market, the value that the product provides, and the competitive landscape. In general, the goal of pricing for product-led growth is to maximize the value that the product provides to customers while also generating enough revenue to sustain and grow the business. Here are a few general principles to consider when pricing for product-led growth:
Start by understanding the value that your product provides to customers. This will help you determine the maximum price that customers are willing to pay for your product.
Consider the competitive landscape. What are other similar products priced at? How does your product compare in terms of features and value?
Consider offering a range of pricing options. For example, you could offer a basic plan with limited features at a lower price, and more advanced plans with additional features at a higher price. This can help you appeal to a wider range of customers.
Be prepared to adjust your pricing over time. As your product and business evolve, the value that your product provides to customers may change. This may require you to adjust your pricing to reflect the changing value of your product.
Ultimately, the key to successful pricing for product-led growth is to focus on the value that your product provides to customers and to be willing to adjust your pricing as needed to reflect that value.
Comment: This is all pretty reasonable, but also generic. So my next question was …
How can I figure out the value of my product-led growth offer?
Determining the value of your product-led growth offer can be a challenging task, as it depends on a variety of factors such as the target market, the competitive landscape, and the unique features and benefits of your product. Here are a few steps you can follow to figure out the value of your product-led growth offer:
Start by understanding your target market. Who are the people that will be using your product? What are their needs and pain points?
Next, consider the competitive landscape. What other products are available that serve the same or a similar need? How does your product compare in terms of features and benefits?
Identify the unique features and benefits of your product. What makes your product stand out from the competition? How does it solve specific customer needs and pain points?
Use this information to create a value proposition for your product. This should clearly articulate the unique benefits and value that your product provides to customers.
Use your value proposition to determine the maximum price that customers are willing to pay for your product. This will help you set a pricing strategy that maximizes the value of your product-led growth offer.
Remember, the value of your product-led growth offer can change over time as your product and business evolve. Be prepared to adjust your pricing as needed to reflect the changing value of your product.
Comment: This is a bit too vanilla to be useful. To really figure out how to price for Product-Led Growth one needs to dig down into value drivers and how value plays out over the customer journey. This is hard work, and it is unreasonable to expect a free, in beta, AI to do that work for you. But in a year? Who knows, given Chat GPT’s ability to debug code and solve mathematical problems it may also get to a point where it can build value models and design pricing, ulp!
On a different thread, ChatGPT suggested that pricing needs to be fair. So I asked about that again.
What does it mean that pricing is 'fair'?
Pricing is considered to be "fair" when it is perceived to be reasonable and equitable by both the buyer and the seller. In other words, a fair price is one that both parties feel is a good value for the product or service being exchanged.
There are a few key factors that can influence whether a price is perceived as fair by both parties. For example, the price may be considered fair if it reflects the value of the product or service being exchanged, if it is in line with prices charged by competitors for similar products or services, or if it is based on a mutually agreed upon negotiation between the buyer and the seller.
In general, fair pricing is seen as an important aspect of creating a positive and mutually beneficial relationship between buyers and sellers. By offering fair prices, businesses can help build trust and credibility with their customers, which can lead to long-term success and growth.
Comment: This is fine so far as it goes (which is what a lot of people are saying about ChatGPT’s current answers.) At Ibbaka we would say that pricing is fair when it is
Transparent
Consistent
Distributes value between buyer and seller
Using ChatGPT for pricing advice
Today, ChatGPT provides reasonable general comments on pricing. For people wanting to get a general lay of the land it provides a reasonable conversational interface. At this point, it does not do more than that. But in the future, given its ability to generate code and to integrate data, it may well go much farther. Pricing consultants could largely be replaced by this kind of technology in the next few years. We will have to find new ways to add value and to work collaboratively with AIs.