Unlocking Profitable Products: The Science of Feature Packaging

Crafting a Winning Product Monetization Model: The Power of Packaging Strategy

A well-designed monetization model is the backbone of any successful product. It answers four crucial questions: what to charge for, how the price scales, what the actual price is, and when to charge. In this article, we’ll delve into the first part of this equation – defining what to charge for – and explore how a packaging strategy matrix can help you make informed decisions.

What is Packaging Strategy?

In simple terms, packaging defines which sets of features you charge for together. For instance, if you have a subscription model, packaging determines which features are bundled in which subscription plans and which ones are offered for free or as add-ons. There are two occasions when product managers need to revisit their packaging strategy: when the existing packaging becomes obsolete, and whenever a new feature is added to the product.

Creating a Product Packaging Strategy

Developing a product packaging strategy involves five key steps:

1. Understand Which Features Users Value

Start by understanding how your users perceive the value of the solutions you offer. There are various approaches to this challenge, including value scoring, behavioral analysis, and max-diff surveys. Max-diff surveys offer the best tradeoff between precision and effort, so let’s focus on that. List all the features your product offers, then survey your users by asking them to choose the most valuable and least valuable features. Calculate the max-diff score using the following formula: Max-diff score = (# of people who found the factor most valuable – # of people who found the factor least valuable) / # of surveyed people.

2. Understand Users’ Willingness to Pay for These Features

The next step is to understand how much users are willing to pay for the features you offer. There are various approaches to testing this, including price-point interviews, Van Westendorp’s price sensitivity meter, indexing, probability questions, and “build your own” exercises. Van Westendorp’s price sensitivity meter is a popular approach, so let’s use this one. Survey your users, and for every feature, ask them four questions: at what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive), at what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (Too cheap), at what price would you consider the product starting to get expensive so that it is not out of the question, but you would have to give some thought to buying it? (Expensive/High Side), and at what price would you consider the product to be a bargain—a great buy for the money? (Cheap/Good Value). Then, map the answers on a cumulative frequencies chart.

3. Calculate Willingness to Pay Deviation

Now that you understand the willingness to pay for each feature (defined as the optimal price point in Van Westendorp’s price sensitivity meter), you need to calculate each feature’s %deviation from the median willingness to pay. This will show you which features your users are willing to pay for more and less. Start with calculating the median willingness to pay, and then calculate how each feature stacks against the average.

4. Map the Packaging Strategy Matrix

By understanding your two key metrics – perceived value (defined as max-diff score) and willingness to pay (defined as %deviation from the median optimal price point of Van Westendorp’s price sensitivity meter) – you can map how the features stack against each other using a 2×2 matrix. On the horizontal axis, map the perceived value of features on a scale of -1 and 1. On the vertical axis, map the %deviation from the median willingness to pay on a scale of -100 percent to 100 percent.

5. Analyze the Packaging Strategy Matrix

The packaging strategy matrix puts features into four buckets: table stakes, not valued, add-ons, and expansion triggers.

• Table Stakes: Features that are highly valuable for users, yet have a low willingness to pay, are table stakes. These features are “must-haves” from users’ perspective, yet they are unwilling to pay for them.
• Not Valued: Features that have both low willingness to pay and low perceived value build a “not valued” quadrant. You should reconsider whether you even need them.
• Add-ons: If a feature has a high willingness to pay but a low perceived value, it’s a desired feature but only by a minority of users. It doesn’t make much sense to put it into your standard product offering, but giving them away for free would waste their revenue potential.
• Expansion Triggers: If the feature is highly valuable for the majority of users and these users are willing to pay for them, it’s an expansion trigger. These are the best drivers to encourage users to buy your product, upgrade their subscription tier, etc., and should be the core of your packaging strategy and upsell flows.

The Result: A Packaging Strategy

Let’s now look at what an optimal packaging strategy would look like based on the matrix we just created:

• Basic Tier: Features that are table stakes should be part of the basic offering. If you have a freemium model, these should be offered for free. If you have a paid product, include these features in the least expensive tier.
• Higher Tier: It makes sense to offer a higher tier that includes expansion triggers. For freemium products, these features will be subscription drivers. For fully paid products, I’d recommend selling a more expensive tier with that feature.
• Add-ons: Features that make for good add-on candidates should be sold separately regardless of the chosen plan.

Closing Thoughts

Packaging is often an underappreciated activity, and many companies do it once and then set and forget it. However, suboptimal packaging has dire consequences for the business. You might lose a lot of revenue if you keep features with high WTP and perceived value in low tiers, harm your acquisition engine by paywalling highly valuable features with low WTP, create a confusing “feature shock” if you don’t review features with both low value and WTP frequently, or miss valuable opportunities to upsell add-ons. Although creating a packaging strategy matrix is a complex and time-consuming endeavor, small improvements in your packaging strategy can make a significant impact on your product performance and bottom line. Thus, it’s worth revisiting it regularly.