Very relevant to what my startup is going through. HiPPO is real. Even when agreed to test pricing, the strong personal assumptions (whether admitted or not) going into testing is tricky in enabling a truly objective experiment. Also constantly reminding the team that discounts do not equate to pricing (discounted pricing obviously have a higher conversion, but this is a strictly different buying experience vs lower pricing). We're about to do a pricing study and I'm curious to see if higher price will actually convert better for us -- have you seen this happen?
Hi Elena, thank you very much for this. This was very well-thought out. I agree with many points that were mentioned, however I do not think Sam made a mistake and was in the HiPPO zone.
Here's why I think Altman did not make a mistake:
OpenAI pushed out a number that may-be right, then they just saw the market reaction, and can now change the pricing again.
If Altman had asked his "pricing committee" for the price, each would be riddled with "assumptions"
A committee of pricing experts nitpicking analysis would have 3 options:
1. Greater than $200= Price Shock = Not enough users sign up = No usage data discovery
2. Agree with $200 = Wasted time = Wasted money
3. Less than $200 = Worse loss-making decision = Committee worse than 1 decision maker.
At least with his decision: They made some revenue, They found insightful usage data, They proved that untethered ChatGPT is highly in demand.
Now they can use that usage data to: Optimize algorithms to make them less costly
Importantly: They KNOW some segments WILL PAY $200/month
The only person on 'act' mode is the CEO which is why he is highly qualified to do this move.
Nice article. One area I’d recommend teams look at is how their competitors price and package. You have an opportunity to differentiate from (or align with) their pricing models / feature packages, especially if you want to target that buyer… Understanding competitor pricing is super useful to inform changes to your pricing.
Do you like any software for doing price tests?
Very relevant to what my startup is going through. HiPPO is real. Even when agreed to test pricing, the strong personal assumptions (whether admitted or not) going into testing is tricky in enabling a truly objective experiment. Also constantly reminding the team that discounts do not equate to pricing (discounted pricing obviously have a higher conversion, but this is a strictly different buying experience vs lower pricing). We're about to do a pricing study and I'm curious to see if higher price will actually convert better for us -- have you seen this happen?
This was very good
Hi Elena, thank you very much for this. This was very well-thought out. I agree with many points that were mentioned, however I do not think Sam made a mistake and was in the HiPPO zone.
Here's why I think Altman did not make a mistake:
OpenAI pushed out a number that may-be right, then they just saw the market reaction, and can now change the pricing again.
If Altman had asked his "pricing committee" for the price, each would be riddled with "assumptions"
A committee of pricing experts nitpicking analysis would have 3 options:
1. Greater than $200= Price Shock = Not enough users sign up = No usage data discovery
2. Agree with $200 = Wasted time = Wasted money
3. Less than $200 = Worse loss-making decision = Committee worse than 1 decision maker.
At least with his decision: They made some revenue, They found insightful usage data, They proved that untethered ChatGPT is highly in demand.
Now they can use that usage data to: Optimize algorithms to make them less costly
Importantly: They KNOW some segments WILL PAY $200/month
The only person on 'act' mode is the CEO which is why he is highly qualified to do this move.
Thoughts?
Nice article. One area I’d recommend teams look at is how their competitors price and package. You have an opportunity to differentiate from (or align with) their pricing models / feature packages, especially if you want to target that buyer… Understanding competitor pricing is super useful to inform changes to your pricing.
Super thorough and helpful, loved this!
Thanks for this. I found the metrics section most useful!