How do you roll out pricing and packaging for a new product launch?
We aspire to do this with absolute excellence -- with rapid A/B testing and optimization. Come join our team!!
That being said, here are some observations (I polled folks on my team to contribute based on what they've seen in their careers as well). Bottom line, pricing projects are hard--and can be messy!
Pricing is all about balancing tensions. You might have the most perfect spreadsheet pricing model in the world. It might even be the best deal for your customers. But if it’s too much work to understand, you’ll probably lose. Here’s some examples:
Tension between grandfathering existing customers and serving new customers. Ask how do you be thoughtful about the people who helped you get to where you are today and what do you need now to be successful in the future? It’s important to talk through with cross-functional stakeholders (and make the space and time for it).
Tension between simplicity and revenue maximization.
Tension between what you want to sell and what people are looking to buy. Don’t confuse your company vision with what people want.
Understand the competitive landscape. Pricing differently can be effective (ie transparency in a market historically opaque). But, it can also create cognitive overload (especially with professional buyers) especially when people are comparison shopping. When you’re charging by usage and everyone else is charging by seats, that might work super well, or create mass confusion. Good to explore the pros and cons - and really get to know your customers--both current and future. It’s harder to forecast usage than headcount, so that may create friction in your sales process.
To mitigate some of the above: build hypotheses and test them with customers before going live. If you’ve got the budget to survey non customers, go get yourself some data points! Conjoint analysis can be a good way to get a sense ahead of time. Van Westendorp can be helpful (if not done in isolation).
If you’ve got a sales team, really leverage them. They often know really how customer are evaluating you and the competition. Betas can also be a good time to test pricing and get feedback. Be flexible, you might not nail it right off the bat.
We roll out new pricing and packaging in conjunction with our seasonal launch cadence. (See context in question below).
There are 4 milestones in every seasonal launch:
- Product Readiness
- Cross-functional Readiness
- Internal Enablement
- External Promotion
There are two parts that touch Pricing & Packaging. First, getting pricing and packaging ready is part of #2 Cross-Functional Readiness.
- This is when multiple groups come together to propose, align, and decide on a pricing/packaging strategy.
- The groups that are involved here are Product Management, Product Marketing, Sales Operations, Finance, Legal, and Documentation. This cross-functional group decides on the timeline and impact of the new pricing/packaging proposa. (for example, "if we need to add this to the CPQ tool, how should it be represented and when should it be updated by?")
Once that's done, then Product Marketing leads the rollout. We do this during Internal Enablement for the entire seasonal launch.
- The reason we couple it together is because it gets rather confusing for the field if we roll out messaging one month, pricing the next month, and competitive analysis the month after. Piece-mealed enablement hasn't been very effective for us. Instead, we anchor on a big-bang internal enablement week every season.
- Once we've taught the field the new pricing and packaging, we ensure that Sales Ops also updates internal documents and tools to let the field start selling.
I've answered some of this in previous questions, but here are some thoughts...
1) Understand your buyers needs, budgeting/buying process, problem you are solving for them (and/or their users) and the relative value of solving that problem
2) Look at competitive solutions or alternatives to solving the problem and look at how they are pricing/packaging their solution
3) What's the cost of not solving the problem
4) Form a hypothesis on the price for the new product
5) Talk to existing or potential customers (before you launch the product). Ask them what they would pay for it if it solve their problem. Is it close to your hypothesis or higher/lower?
6) Talk to the sales people who will be selling it? Do they think they can sell it at that price point?
7) If it's a self-serve or freemium product, do a targeted/limited launch and see how it does? Are you converting targets for trials and then converting to paid at the rates you expect them? What happens if you lower or raise the price? How does it effect conversion rates?
6) Find some early/beta customers to try the product (for a deep discount or free for a trial period). Get product and value feedback from these early customers. Get case studies and/or peer reviews from the advocates.
7) Enable your sales and customer success teams on selling the new product?
8) Make sure you set and measure success metrics. Test different things to see how it impacts the success metrics (conversion rates, win rate, sales cycle lengths, discounting rates, etc.)
Step 1: Get access to biz ops data to understand business performance (clients per pricing plan, discounting per pricing plan, size of the company per pricing plan)
Step 2: Analyze the business opportunity to build a business case for a new product or pricing launch.
Step 3: Speak to sales to understand why we win or lose deals. Speak to Customer Success to understand what customers are requesting and why.
Step 4: Align with Product on what to build based on business and customer goals.
Step 5: Build a mock product and validate it with potential customers, along with the willingness to pay.
Step 6: Build MVP and launch (create messaging, packaging, train sales, etc.)
Step 7: Monitor performance and make adjustments when needed.
In general, you'll need to understand how much it costs you to operate the business, how much a customer's lifetime value is, and the total addressable market before launching a new product or feature. Pricing and packaging is a core part of this new feature release. You won't always get it right. The most important thing is to stay close to customers and the numbers to see the trends and make adjustments along the way
This presentation could be useful :)
I see Pricing and Packaging as both a science and an art.
What do I mean by that? It’s a science in the sense that you have to run a lot of business simulations and crunch the numbers to do the revenue projections. That is the science aspect of it.
Yet there's also an emotional aspect to your product price, which in my mind also makes it an art. And because of the art aspect of it, you have to do a lot of testing. You have to test your assumptions in terms of charge versus include. Test with your account executives, with your existing customers, even maybe with prospects, if you can (via a third party agency to do a web survey).
A big guiding principle for me is to always put your buyer’s hat on - always, but even more when doing Pricing & Packaging.
If the product that you're launching is reaching a new line of business or a new persona, then that probably means a new SKU or even a new BU or product line.
You also have to think about product dependency. If the new product or module you’re launching has a strong dependency on an existing product (AKA the new product only works if you bought the previous one), then you might have to consider an add-on approach - or an Edition approach.
Big rule is always shooting for simplicity, both for the buyer and the seller. I am a big fan of a “Good/ Better/ Best” packaging approach - aka Editions. I think add-ons are to be used sparingly… because you always want to avoid SKU proliferation, and i’ll tell you, add-ons can be the best way to get there, you end up with a lot of SKUs and a very long pricelist which everyone hates. I always prefer to include new features in the correct edition to justify my product prices. Rough rule is if less than a third of customers would value that feature in an edition, then don't include it, and charge as an add-on.
Pricing is both a science and art -- which means in many cases, it is hard to predict if you have hit the right price (high enough to capture maximum value but low enough that you can scale it to a broad customer base). Because of that, it can sometimes feel like pricing is based on the wind, but in reality, it is a careful process!
Here’s a step-by-step that has worked for us:
- Research - Dig into competitive pricing (how are similar products priced, what would the alternatives cost?) and identify pricing models that might work (consumption-based or per-license?). Make a recommendation on a set price and discounting model based on your data.
- Validation - does the pricing resonate with customers (will they buy it at that price? What are their objections?) Also, validate with your Sales teams. Can they sell it at this price? Will they sell it or is the ASP not high enough for the effort? Would bundling help
- Alignment - In a larger company, this might involve a presentation and review with a pricing council, in a smaller company this might be sign-off from key execs and alignment with key leaders. Regardless, alignment with your leadership and with sellers is critical prior to launch.
- Training - It's important to not only share the logistics of new pricing (how it will be rolled out to the website for self-serve or the process to purchase in a sales assisted process) but also the why. Training internal teams on the reasoning beyond price targets and the mechanism for discounts is key. I like to create 2 slides: why (reasons for the pricing and details on how it was derived), use cases & objections (essentially the talk track and key messages for sellers).
- Launch! Going live on your website and with sellers is exciting. Now get the gong ready for your first sale!
Usually, your existing customers are the most impacted by pricing and packaging changes – so you may need to focus on communicating any updates clearly to your users. If all the changes are positive (e.g. they get more for the same) your job is much easier. If there are negative impacts, you need to diligently segment all your cohorts and identify how each group will be impacted, and then create a comms strategy from there. A blog explaining the changes and customized emails to each group is how we have approached this before.
The roll-out should happen at the same time you train your internal teams about the messaging & positioning, product value, use cases etc. But, the work with pricing & packaging has to start much early. Ideally you have some idea of the products and features that are going to be released a few months before and can bring it into your pricing & packaging process.
I would think about the features based on tier - Tier 1, 2 or 3, and use that to determine if it needs P&P support. Tier 3s likely don't. But something that warrants a Tier 2 or 1 launches typically will. The pricing & packaging recommendation for these should come from the product manager and the product marketing manager leading the launch. It should be based on what problems the product is solving, who it's for/audience/persona, value it delivers, and how it compares to the competition. Is it a catch-up or parity feature? Is it highly differentiated? Is it a nice to have / required capability vs value add? These are important factors to determining the plan the feature will go into or if it should be sold as an add-on/standalone and at what pricing point.
One thing to keep in mind is that during the alpha and beta process, you are still likely working through the pricing and packaging. I would caution to not set any expectations with customers that they will get it for free forever. You might do that, but leave the door open to have the flexbility to choose. You can hande this communication in a high touch 1-1 manner since most alpha and betas are relatively small and/or the CSM should be involved to help drive adoption, answer questions etc.
Rolling out pricing and packaging for a new product launch requires a well-planned execution plan that informs multiple audiences as to "what you are selling," "how you deliver value," and "why you are better than alternatives" in your product launch.
The plan should include critical phases for enabling internal audiences, educating customers and partners, and collecting feedback from internal and external sources to optimize the rollout process.
Key audiences to consider in your planning:
- Internal stakeholders
- Existing customers and prospects
- Channel partners
- Marketplace (e.g., website, app listings, review sites, PR, etc.)
Let's assume that you've got the pricing set, the feature packaging defined, and the product technically built.
What happens next? Enablement!
My laundry list of things to do includes:
- Work with the CPQ/Systems team to build out the commercial workflow of what a SKU looks like, how discount approvals and escalations flow, product special terms, and configuration policies
- Build a training deck for different audiences (Sales, CSMs, Implementation, Support, Deal Desk) that describes what the product is, who typically will buyer, details on the ideal customer profile, the pricing, who can sell, discount structure, positioning, and selling "rules of engagement"
- Generate assets like price sheets, seller guides, proposal/ROI calculators, and feature-packaging breakdowns
- Work with the customer marketing team to push content to the install base
- Work with the revenue marketing team to push content to prospects
- Set up the measurement apparatus on KPIs like average selling price, average deal size, cumulative ARR, and discretionary discounting all broken down by segment, region, deal type, and competitive-threat
- Work with the Documentation teams to incorporate feature differentiation into key help center or customer advice channels
Because pricing and packaging will touch almost every area of the business, you'll have to prioritize!
My method is to start with where the product is most likely to be sold.
For example, are you primarily selling to the install base? TALK TO CSMS!
Is it mainly for smaller customers? PRIORITIZE THE SMB SEGMENT!