AMA: Intercom Head of Monetization & Pricing Strategy, Jonathan Brandon on Pricing and Packaging

Me too! I was, uh, lucky enough to study Economics in college then spend 15 years in the financial services industry. This gave me a really solid background in research and quantitative analysis. While I haven't taken it, I have heard excellent things about the Reforge Monetization + Pricing course. Many things can be learned outside of class. Here's a super condensed list of reading material I highly recommend. They're not all directly related to pricing & packaging, but have informed how I think and should be understood, especially from the perspective of PMM: * The Strategy and Tactics of Pricing, Thomas Nagle * Monetizing Innovation, by Madhavan Ramanujam * To Sell is Human, Daniel Pink * Payoff, Dan Ariely * Never Split The Difference, Christopher Voss * Obviously Awesome, April Dunford Also, read the content from Patrick Campbell (Price Intelligently), Lincoln Murphy (SixteenVentures ), and Kyle Poyar (OpenView ) and listen to Zuora's Subscribed podcast

The big one....where to start?! Creating your company's first well-researched pricing model is quite different than making a big change later on, but I'd say some of the same advice holds: * Alignment is CRITICAL! Any change in your pricing, especially in SaaS, absolutely must involve every team within your organization. And as much as it may sting, customer-facing teams (sales, support, success, etc) need to have a very prominent role. Alignment comes from creating a team of cross-functional stakeholders all accountable for elements of the project. Make sure you have a project plan and a DACI! At Intercom, we are lucky enough to have a dedicated program management team, who are critical in ensuring alignment and continued progress. * Make sure your company's strategy is well-defined and committed to for at least the medium term. This includes overall company strategy, product strategy, and GTM strategy. Pricing and packaging strategy should ladder up (and inform) every level. Since P&P changes take a long time to implement (and an even longer time to measure) shifts in strategy can be very difficult to incorporate. * Do your research, and be wary of analysis paralysis. Depending on your business model, there will be blind spots that you'll never be able to fully understand, but you should try. In high-volume, self-serve businesses, you will need to supplement your commerical and product data with primary customer research. And in sales-led, enterprise businesses, you'll need to analyze discounting practices and talk to prospects on your own, as sales feedback has strong recency bias and often reflects problems in your sales enablement or team skills, rather than price-to-value. There will be a point where you just can't learn any more, and you have to go with your gut. Which is why it's important to... * ...Create clear metrics and a rigorous test plan to attribute results to specific changes that were made. Changing a lot of things at once can make it very difficult to pull apart results that didn't go as expected (and trust me, they won't go as expected!) * Don't skimp on sales enablement, and involve sales teams FAR before launch. Make sure you understand what's working and what's not with the current pricing model. Change is hard, and pricing changes are among the most disruptive things a sales team can experience. Be optimistic, but make sure to frame the change in a way that makes them feel heard and understood.

Pricing is tough, and it's also never done. That being said, making incremental changes too often without understanding the impact of the previous change is the achilles heel of monetization. You will never "know" pre-launch that you have the right price. There are a lot of things you can do to increase the probability that you are in the ballpark though. Inputs are going to vary based on your industry and business model and selling motion, but will almost always include some kind of internal product analysis, primary customer and prospect research, in-market quantitative data (surveys, conjoint analysis, etc.) and financial modeling. Your 2nd question is the more important one. As mentioned in the "launch/relaunch" question, this is all about having a rigorous test plan and really clear success metrics. As nice as that sounds, it's actually one of the hardest things to do, and must ladder up to your P&P strategy as well as your company strategy. You should have a north star, such as "Increase sales-led ARPA by 20%" or "Improve retention among X segment by 15%" and then a set of guardrail metrics that sit underneath. Those could include measures of conversion, discounting, volume, ACV, failed payments, product mix, etc, etc, etc. 

Check out my answer to question "What have been your key learnings from any "Pricing/Re-pricing launch" that you have led/seen within your company?" But it's worth repeating: involve them early and often, and build trust! This means more than occaisional pop-ins and surveys. It means building relationships with your sales org at ever level. Get to know some reps. Sit in on sales calls. Read closed won/lost reports. Figure out how they are compensated. Have regular check-ins with leadership to validate what you're hearing from the field (they often have a good sense of what's real and what's not). Sales feedback is important, but needs to be filtered carefully. When I talk to sales, I tend to focus on the following questions * Does the P&P structure align with the way we talk about the product and pitch the benefits it provides? * Do the pricing methods (note: not price points) make sense to customers and support how you position value? * What are the main reasons you need to discount and what situations arise most?

The transition to PMM leading pricing occured before I joined, and led to my hire (yay!) At Intercom, pricing had been a shared responsibility without a clear owner for quite a while. It was a collaboration between product, finance, bizops, and sales. While the collaboration model remains, having PMM lead the effort (and having a clear driver and DACI) has been hugely beneficial. The biggest reason is that PMM sits at the intersection of Product and GTM (Sales and Marketing) and is thus ideally positioned to incorporate perspectives from across the organization. When you examine other parts of the business, there are strong arguments against each: * Sales is incentivized to hit quarterly quotas, which is short-term and volatile, and is not always aligned with the higher level company strategy * Product is typically focused on existing customers and care about adoption, which can lead to inefficient monetization * Finance is disconnected from both prospects and customers, and will struggle to create P&P that's aligned with value. What's left? PMM! Am I biased? Probably :-)

Assuming you have a clear strategy, it always comes down to understanding your ideal, target customers. When going from a single product to multiple, you need to figure out who it's for, what drives value, and how you plan to charge. We have a set of richly detailed buyer personas at Intercom that connects segmentation, value drivers, product needs, and willingness-to-pay. To develop packages, you start with a hypothesis: create hypothetical packages, price points, and buying motions (self-serve vs sales) and then pull in cross-functional team (designers, researchers, analysts, and sales people) to evaluate different P&P concepts. Check out my response to the "Pricing/Re-pricing launch" answer as well!

At Intercom we believe in value-based pricing, which means we price primarily, but not exclusively, according to the perceived value of our proudct to our target buyers. Competition is an important input, but unless you are selling a fully commoditized product for which many identical alternatives exist (ie. toothpaste), it shouldn't be the primary driver of your pricing. I could hold up two identical black rectangles labeled "smartphone" and put $999 on one and $599 on the other, then ask you "which one is an iPhone?" and I guarantee you'd know. They have the same features. They're probably made in some of the same factories. But they fetch very different values in the market, and one commands a premium. Not because it's better. But because buyers want it more. That being said, the prices of competing products are important external reference points on the value of your product. Competitive insights are most helpful when it comes to analyzing pricing models and metrics rather than price levels. Price points are typically determined by customer research, financial analysis, conoint analysis, etc. But price metrics are important to validate against industry norms and customer mental models. This goes back to why PMM should drive pricing: you need to adequately differentiate your offering and compel your target buyers to see the highest value possible. competitive insights can be hugely helpful when it comes to analyzing pricing models and metrics rather than levels - levels is something that customers will determine when you talk to them, but having an idea of industry norms for models and metrics is key, because it's so important to be aligned with competitors so that customers can wrap their head around pricing more quickly Sometimes we go through the exercise of imaging what a specific customer would have to buy if our product didn't exist. It can be really enlightening.

They are absolutely linked, and I'd argue that positioning drives both pricing and packaging What features are needed by which buyer personas? What do you call them? How do you describe plans? How do you convey that it's super valueable? What are customers anchoring on? That's all positioning. Your pricing page and structure should map to how your marketing and sales team are talking about and positioning the value of your product. Pricing is the exchange rate on that value you're providing, as Patrick Campbell says often. I'm of the philosophy that willingness-to-pay (""WTP"") is not a static, fixed constant you are forced to receive, but rather something you can influence via positioning and strong product marketing. You can position an identical product to buyers with dramatically different WTP, and ideally your price will find the optimal blend of ACV and volume. (another plug for why PMM should drive pricing!)

If you're lowering your price, you might have bigger problem than how to communicate the change. This sounds like a more fundamental product strategy, positioning, and segmentation question than it is about pricing. In general, communicating price changes (higher or lower) and determining eligibility isn't the job of the pricing function. It's pricing's job to make a recommendation that supports the company's strategy and helps hit financial targets. Ultimately, it will be up to customer-facing teams to execute against the change. As part of our monetization strategy, we developed a set of principles that define not only how we price, but how we implement and managing various situations. They include ideas such as fairness, flexibility, predictability, comprehension, durability, and customer-focus. Within these you can define migration principles that will help you navigate these situations as they arise.