mattgierhart/prd-v03-pricing-model

Pricing Model Selection

Position in HORIZON workflow: v0.2 Product Type Classification → v0.3 Pricing Model Selection → v0.3 Moat Articulation

Consumes

This skill requires prior work from v0.2-v0.3:

• BR-* product type entry (from Product Type Classification) — Determines which pricing model makes sense
• CFD-* competitive intelligence entries (from Competitive Landscape Mapping) — Competitor pricing, WTP signals
• BR-* moat entries (from Moat Definition, parallel v0.3 work) — Price as potential moat element
• KPI-* outcome entries (from Outcome Definition, parallel v0.3 work) — Success metrics tied to pricing
• Cost structure estimates (from own analysis) — Unit economics to validate price floors

This skill assumes v0.2 competitive analysis is complete and product type is defined.

Produces

This skill creates/updates:

• BR-PRC-* entries (pricing constraints) — Rules governing price floors, ceilings, discounts
• BR-PKG-* entries (packaging rules) — Tier boundaries and feature gates
• BR-CMP-* entries (competitive positioning) — Price anchor targets and undercut thresholds
• Pricing model artifact — Named decision: "We will use [Model] because [evidence]" with tier definitions

All BR pricing entries should include:

• confidence: 2-3/5 (based on WTP evidence tier and competitor benchmarks, not assumptions)
• Evidence source (competitor pricing, customer interviews, cost structure)
• Forward target: "Would move to 4/5 if real customers validate WTP"

Example pricing rule entry:

BR-PRC-001: Entry Price Floor

Rule: Entry tier never below $15/mo (annual) or $19/mo (monthly)
Confidence: 2/5 (source: CAC-estimate + competitor-benchmarks)
Rationale: Below $15/mo, CAC payback exceeds 6 months, unsustainable
Enforcement: Stripe product configuration, pricing page, contract templates
Evidence:
  - CFD-042 (competitor pricing): Similar tools start at $15-25/mo
  - KPI-001 (outcome): CAC estimate $45, need 3-month payback = $15/mo minimum
Enforcement: Set in Stripe, document in pricing page, enforce in sales contracts
Exception: Founding customer 50% discount (must be approved by founder)
Next Target: "Would move to 4/5 if 5+ paying customers validate willingness at $15/mo"

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BR-CMP-002: Competitive Undercut Threshold

Rule: Maintain ≥50% savings vs [Competitor Name] at SMB level (5 users)
Confidence: 3/5 (source: competitor-pricing + 2-SMB-interviews)
Rationale: Price advantage is core differentiator for SMB segment (per product type: UNDERCUT)
Enforcement: Quarterly competitive price audit; triggers price review if competitor drops
Evidence:
  - BR-001 (product type: Undercut)
  - CFD-015 (value hypothesis): SMB would save $12,500/year at target price
  - CFD-042 (competitor pricing): Competitor at $30/user/mo = $1,800/year for SMB
Exception: If competitor drops price, floor (BR-PRC-001) takes precedence
Next Target: "Would move to 4/5 if SMB cohort pays premium for our service over incumbent"

Core Principle

Pricing follows value timing: When and how customers receive value determines the pricing model. Don't copy competitors without understanding their value delivery pattern.

Pricing Model × Product Type Matrix

| Product Type | Typical Model | Why It Fits | Anti-Model (Avoid) | |--------------|---------------|-------------|-------------------| | Fast Follow | Match market structure | Users expect familiar pricing | Premium positioning (no differentiation) | | Undercut | Flat rate, aggressive discount | Price IS the value prop | Per-user (negates savings) | | Clone | Parity or slight discount | Must compete on terms users know | Innovation pricing (confuses buyers) | | Slice | Usage-based or ecosystem-tied | Value tied to platform activity | Flat fee (misaligned with usage) | | Wrapper | Per-integration or usage | Value = connections made | Per-seat (value isn't user count) | | Innovation | Value-based, potentially premium | Funds education, signals quality | Race to bottom (devalues category) |

Value Timing → Model Selection

Ask: When does the customer get value?

| Value Pattern | Recommended Model | Examples | |---------------|-------------------|----------| | Continuous recurring | Subscription (monthly/annual) | SaaS tools used daily | | Per-transaction | Usage-based | API calls, exports, generations | | One-time outcome | One-time fee or lifetime | Logo design, course completion | | Milestone-based | Tiered + upsell triggers | Features unlock as needs grow |

Competitive Anchoring Decision Tree

1. Do competitors use per-user pricing?
   ├─ YES → Calculate "SMB penalty" (5-user annual cost)
   │   └─ Flat pricing at 50%+ savings = strong positioning
   └─ NO → Match model, differentiate on value/features

2. Is competitor pricing transparent?
   ├─ YES (Tier 1) → Use as direct anchor
   └─ NO ("Contact sales") → Find proxy or G2/Capterra estimates

3. Should we undercut, match, or go premium?
   ├─ Undercut: When we're simpler/niche and can sustain margins
   ├─ Match: When competing on features, not price
   └─ Premium: Only with clear, provable differentiation

SMB Penalty Calculation

Per-user pricing penalizes SMBs with larger teams. Calculate the arbitrage:

Competitor: $30/user/mo
SMB with 5 users: $30 × 5 × 12 = $1,800/year

Our flat rate: $99/year
Savings: ($1,800 - $99) / $1,800 = 94%
Headline: "94% less than [Competitor] for teams of 5"

Rule: If savings exceed 70%, lead with price in positioning.

WTP Validation Hierarchy

| Tier | Method | Confidence | When to Use | |------|--------|------------|-------------| | 1 (Highest) | Actual purchase, payment collected | 95%+ | Post-MVP, real customers | | 2 | Pre-order, payment intent, trial→paid | 70-85% | Landing page tests | | 3 | Email signup at stated price | 50-65% | Smoke tests | | 4 | Survey, interview ("would you pay X?") | 25-40% | Early exploration only | | 5 (Lowest) | Assumption, gut feel | <20% | Never use alone |

Gate rule: Tier 1-2 evidence required before locking pricing. Tier 4-5 only for hypothesis generation.

Free Tier Design Rules

Only include a free tier if it serves a strategic purpose:

| Purpose | Free Tier Design | Example | |---------|------------------|---------| | Viral acquisition | Generous + sharing incentive | Dropbox referral | | Product-led growth | Useful enough to hook, limited enough to upgrade | Notion personal | | Market education | Demo the category value | New category tools | | Usage seeding | Get data/content, charge for output | Canva designs |

Anti-patterns:

• Free tier that satisfies most users (no upgrade trigger)
• Free tier that requires support (costs without revenue)
• "Free forever" for unlimited users (cannibalizes paid)

Rule: Every free tier needs a clear upgrade trigger tied to value moment.

Tier Design Framework

Structure tiers around value events, not feature count:

| Tier | Purpose | Design Principle | |------|---------|------------------| | Free/Trial | Hook and demonstrate value | First win in <5 minutes | | Entry/Starter | Convert to paying | Lowest price that sustains business | | Pro/Growth | Capture value from power users | Features that scale with success | | Enterprise | Custom needs, high touch | SLAs, SSO, dedicated support |

Tier boundary rules:

• Entry price = CAC payback in ≤3 months
• Pro upgrade trigger = clear usage milestone (not feature gate)
• Enterprise = only if you can support it (don't fake it)

BR- Output Format

Create pricing BR- entries using this structure:

BR-PRC-XXX: [Rule Name]
Rule: [Imperative statement — what MUST happen]
Rationale: [Business driver — why this rule exists]
Enforcement: [Where enforced — code, contract, process]
Evidence: [WTP validation, competitor anchor, cost structure]
Exception: [Override conditions and approver]

BR- Categories

| Prefix | Category | Example Rules | |--------|----------|---------------| | BR-PRC- | Price constraints | Price floor, ceiling, discount cap | | BR-PKG- | Packaging rules | Tier boundaries, feature gates | | BR-CMP- | Competitive positioning | Anchor target, undercut threshold |

Example BR- Entries

BR-PRC-001: Entry Price Floor
Rule: Entry tier never below $15/mo (annual) or $19/mo (monthly)
Rationale: Below $15/mo, CAC payback exceeds 6 months
Enforcement: Stripe product configuration, pricing page
Evidence: CAC estimate $45, need 3-month payback
Exception: Founding customer 50% discount (Matt approval)

BR-PKG-002: Free Tier Upgrade Trigger
Rule: Free tier limited to 50 [units]; show upgrade at 40 (80%)
Rationale: Create natural upgrade moment without frustration
Enforcement: Usage tracking + UI prompt at threshold
Evidence: CFD-XXX shows competitors gate at 25-100 units
Exception: None — critical for conversion funnel

BR-CMP-003: Competitive Price Anchor
Rule: Maintain ≥50% savings vs [Competitor] at 5-user level
Rationale: Price advantage is core differentiator for SMB segment
Enforcement: Quarterly competitive price review
Evidence: CFD-XXX (competitor pricing); BR-001 (product type: Undercut)
Exception: If competitor drops price, floor takes precedence

Anti-Patterns to Avoid

| Don't | Do Instead | |-------|------------| | Copy competitor pricing blindly | Understand their value timing and cost structure | | Innovation product at Fast Follow price | Price for value, not market incumbents | | Free tier without upgrade trigger | Define clear conversion moment | | Discount to win deals | Maintain price integrity, add value | | Change pricing weekly | Set, validate, iterate quarterly | | Gut-feel price points | WTP validation (Tier 1-2 evidence) |

Validation Workflow

Before locking pricing:

1. Calculate cost floor: What's minimum price for positive unit economics?
2. Identify anchor: What do customers pay today? (competitor or workaround)
3. Design tiers: Entry + Pro minimum; free only if strategic
4. Test WTP: Landing page with price, measure signup conversion
5. Lock BR- entries: Document as enforceable rules

Output Requirements

Before advancing to Moat Articulation:

• [ ] Pricing model selected with rationale (ties to product type)
• [ ] Price anchor identified (CFD- reference)
• [ ] Entry price point defined with unit economics check
• [ ] Tier boundaries defined (or "no tiers" justified)
• [ ] Free tier decision documented (yes + trigger, or no + why)
• [ ] WTP validation plan created (even if not yet executed)
• [ ] ≥3 BR-PRC/PKG/CMP entries created

Downstream Connections

| Consumer | What It Uses | Example | |----------|--------------|---------| | v0.3 Moat Articulation | Price as moat element | "Price leadership" defense | | v0.5 Red Team | Pricing risk assessment | "What if competitor undercuts?" | | v0.9 Unit Economics | Price inputs to CAC/LTV | Revenue per customer calculation | | GTM Strategy | Pricing messaging | "91% less than [Competitor]" |

Detailed References

• Good/bad examples: See references/examples.md
• BR- template worksheet: See assets/br-pricing.md