How do you think about pricing and packaging as it relates to competitive positioning?
It depends on the competitive dynamics in your market. Are you the market leader or a new emerging alternative? What are the important buying factors in your market and with your buyers? Is price a primary buying consideration (hint: it often is not unless you make it that way)? It's always important to understand how direct competitors and/or alternatives are tackling pricing. You need to determine what your differentiated value is and how you want your brand represented in your market.
Are you the premium, high quality fully featured solution? Do your customers and the market see you that way? Then you can charge a premium price relative to your competitive alternatives (and understand that you'll be more successful with customers where this matters to them).
Are you the new market entrant that needs to steal share from encumbants. You might not have 100% of the features as the other guy, but you deliver the 80/20 of what customers are looking for at a much lower price. You won't be able to win every customer that needs all the bells and whistles, but you'll win deals where customers just need - 'good enough'.
If you focus on pricing to the value that you deliver and can demonstrably show that customers achieve 5-10X more in value than they spend on your solution, then don't focus too much on what your competitors are doing price wise. It's not good for you or your market.
A truly successful pricing and packaging exercise can't be completed in a vacuum which means competitive positioning must be included in the discussion. The main reason is that you don't want to create EXACTLY the same pricing and packaging approach as your competitors but you also need to be aware of how customers are already being asked to buy. In addition, the competitive positioning will help to determine if the product has already moved to a commodity or is still being priced and packaged in a value-driven approach. This last piece is particularly important because if your product / organization's differentiators are strong enough, you can pull out of commodification and back into value pricing.
Lastly, I have to say that when I've seen a pricing and packaging exercise done most successfully, it's been a cross-functional process that includes PMM, Sales and Product. The insights from these other teams is invaluable and cannot be underestimated.
Your pricing inherently reflects the value of your products, and since competitive comparisons will inevitably come up in deals, you have to translate all your competitive research and market understanding into a compelling set of content and enablement for your Sales team so they can sell the "value"/better position your priducts throughout the life of your deal. If this happens primarily when pricing is being discussed, I'd argue that it's a much harder to successfully navigate.
Positioning (which by definition is competitive positioning since it carves out a place in the market where you are the clear winner) is your strategy. It defines who you're for and how you'll win. As a result, not only pricing and packaging but your marketing strategy, product roadmap, partnership strategy, etc are designed to deliver on that position.
The truth is most pricing problems aren't pricing problems. In fact, they are rarely pricing problems.
They are just the causal impact of poorly understood and/or communicated positioning of a product leading to a lack of conviction and a whole host of downstream issues.
Pricing cannot be set without the Positioning being clearly thought through.pricing is intimately connected to Positioning.
Knowing the positioning will help you answer the following questions:
- Is your product a 'tool/widget,' or is it a 'platform'?
- Is it a vitamin or a painkiller?
- How is it uniquely different compared to available alternatives?
And based on your answers to these questions is how you will create the packages and pricing in context of your product's positioning.
Pricing and packaging are positioning. They're the most concrete way you are defining the value and TCO of your solution relative to the pain a customer is feeling. But it's important to remember that they're only one tool in your toolbox.
Pricing relative to competition can signal a premium product in a commoditized market. Or it can indicate a value-driven sale as a disruptor. Certainly free or freemium is the most aggressive disruptor approach (though not always the most successful).
Packaging is a layer deeper and is a great way to demonstrate that you understand how your customer wants or needs to buy and can be closely tied to brand positioning. You can communicate "we're easy to work with," or "we give you ultimate flexibility" through how you package your product.
For many enterprise buyers, though, the price is the last piece that they'll consider. Yes, you'll be asked about it up front, but your ultimate goal is to prove that you'll provide them the most value or the best solution to their specific problem, not just the best price. Your pricing and packaging should be an extension of your overall positioning, not the lede.
A great example of this is what we built at Tellme Networks. One of the first SaaS platforms (before SaaS was a thing, and really before "cloud" was a common term for a software delivery model, we were disrupting the toll-free/IVR market with a cloud-based speech platform. Remember 1-800-Fandango? Yeah, that ran on Tellme. One of the most fun apps I've ever had the pleasure to design.
But our pricing: overall, our value prop to our customers was "a better customer service experience drives higher automation," and millions of dollars of ROI annually. Part of the position of "why cloud?" related to port efficiency - instead of managing dedicated port capacity in a call center that went unused 70% of the time, we could perfectly flex to load. Our pricing and packaging reflected this. It was utility-based pricing, and companies only paid for the minutes they used. This was completely different than any other model, but it was how we made that pillar of flexibility and capacity concrete.
They go hand in hand. You need to keep a pulse on your competitors pricing & packaging so that you can adjust or create promos/spiffs to support your sales team when needed. That said, you don't buld your pricing & packaging process based on the competition. You should undersand the market - conjoin anaylsis, willingness to pay, price elasticity, value metrics your buyers assign your product and capabilities that are seen as table stakes versus a broad or niche value driver.
You should use this market data (buyers, customers, competitors etc) and your short term business goals to determine your monetization strategy. This strategy will be your north star - letting you say no to any recommendations that don't align to your strategy vs evaluating those that do.
Packaging is a strategic job. Pricing is more about the math, margins, etc. But they way you bundle aka package your products, has tremendous implications to how your customers perceive your product and evaluate you as a partner. Most buyers want transparency and simplicity.
My biggest learning is that you should make your packaging -- from how you present it on your website to your order form, as simple and clear as possible. That will help you build trust with your buyers/customers and differentiate from the competition (especially those that have tons of add-on/sneaky pricing).
I think competitive is one aspect of overall pricing and packaging, but it shouldn't solely dictate how you price or package your product. There are exceptions of course, and if your competitor is the defacto market standard then aligning it more closely to competitors is likely necessary.
Overall, focus your pricing and packaging on your customer, target segments, and unique differentiation. Then ensure it's not wildly off from competitors.
A tool like Klue or Crayon can also help you track when competitors make updates to their pricing page (if there is one public-facing), so you can regularly keep track of any changes.
Your pricing and packaging are components of your competitive positioning - the way you group features or the value metric you use to charge a SaaS fee helps frame your offering to your target audiences.
For example, suppose your packages serve different audiences with differentiated needs. In that case, your competitive positioning requires packaging that clearly states the positioning, benefits, and features each audience desires from your product category. Pricing is equally essential to positioning your offering competitively, as your value metric and pricing tiers will help set your position in the market. For example, an enterprise package typically has yearly vs. monthly subscription options. Knowing how your target customers buy your product category and how competitors price and package their products can help frame your pricing strategy.
If your company chooses to create an alternative model to the rest of the industry, assess the incremental costs and resources required to train your GTM teams and educate prospects and customers on your pricing model.
Really depends where you stack up in the competitive ranking.
Let's say there are three products: Mercedes, Toyota, Pontiac.
The price reflects the package. That's why Mercedes are $50k and Toyotas are $25k.
Mercedes has premium leather and a host of other items "included in the price" to justify that price discrepancy.
When you're Mercedes, you double down on 1) the experience at every touch-point of being a customer (vs. at Toyota they're not giving you white-glove necessarily when you bring your car into the shop) 2) brand affinity or the luxury it communicates and 3) the excrutiatingly precise details that make it worth the extra cash
OK but that's an easy example. What about Mercedes vs. BMW?
The first thing is: both companies have an incentive to keep their prices high vs. Toyota (this is actually a huge point!).
In fact the Mercedes GLC vs. BMW X3 are only $150 different (though the Mercedes ranges higher for custom add-ons).
Otherwise they degrade the luxury premium price.
Second: Mercedes vs. BMW largely comes down to a few features (e.g. styling, finish quality, space, fuel economy) since most of the engine power and add-ons are tablestakes at that level.
So what does this all this mean, especially if you have a close competitor?
- Don't kill your market by racing to the bottom on price (too many examples to list sadly)
- Having a price close to your competitor - even if they're slightly superior - can actually drag you up to their level!
- Communicate your positioning with your price - if you're a superior product, don't be afraid to show it in the price!
Positioning is what your company uniquely provides a specific audience in a particular market. Pricing and packaging are an output of go to market strategy. If price is a differentiator, which is always tricky in my experience, I would encourage you to look for other differentiators or you and the competition will end up in a race to the bottom. Even commodities differentiate with services.
Your pricing, packaging and discounting model is going to be reliant on your offering and position in the market.
It also depends on the characteristics of your target audience. Depending on your target market, pricing may or may not be highly impactful when it comes to signing on the dotted line. That’s why it’s worth sketching out your ideal customer, speaking to current customers and talking to lost prospects. Then you’ll get a good gauge on where pricing sits when your audience is looking to buy.
· Functionality-led: As an example, a larger business with a big budget could be looking for features and benefits, they could be time sensitive and be less bothered by price.
· Pricing-led: Similarly, smaller businesses or those with lower budgets and impressive growth plans might be heavily swayed by pricing.
· Brand-led: Some prospects could already be captured by a brand. If they’ve had a great experience or heard great things, then that could come as a factor over price.
Comparing to the market
Of course, combining competitor, internal and external data is going to give you a really good footing. A couple of things to look for when snooping on competitor pricing.
When: Often overlooked, but when are you competition giving away pricing? Is it up front and visible on their website, or through the sales cycle so they can sell value first.
What: On what basis are they charging? Per person, per month, one off. How does this suit your business model? How do you make it easy for prospects to compare two different pricing models?
Discounts: Are your competition highly inflating their pricing in order to then discount it? Think about what discounts do to the value perception of your product. Knocking off whole chunks of implementation will have your customers questioning what the value was in the first place.
Packaging: You’ll often see packaging up deals in highly scalable Saas businesses. A word of warning here, if you base yourself on being customisable, or your target market has out of the box demands packages like this can undervalue your product.
Ultimately, you need to work within your own remits. What are your costs to serve, what margin are you happy with and work it back from there apply your sales and growth targets.
Pricing will be one of the elements of how your brand is perceived.
Priced low - you might be thought of as an early-stage startup who doesn't have product/market fit yet or isn't confident in their solution,
Priced high - clearly the confidence in solving an issue is there and it usually correlates with the perceived image of the company.
I always like to think of real-life physical examples and then translate them into a software solution. Someone who buys a $10,000 watch or a designer bag, is treated like a VIP. Every little detail in the physical store is impeccable and is there to create an ambiance of what that product represents.
On another side, Gap and Walmart have self-served/browse-through retail racks where you dig through piles of clothes often marked with big font price signs screaming discount and value for money.
Or another obvious one - how does getting a coffee at Dunkin Donuts differ from getting a single-origin cappuccino from a local roastery? The product has a similar effect from the utilitarian standpoint but a completely different perspective and context.
How this correlates to the software?
1) Solving a business pain point for a high-ticket B2B client would garner a high price point because of the value it gives. Everything on the website should be congruent on problem-solving and building trust with your prospect - branding, content, journey, social credibility etc...
2) Look at the competition. What are their pricing structures? How does your product or service differ from theirs? Do you offer more value, better onboarding, and better experience? You can take the competitors as a baseline and adjust the price tag based on the differentiation factors
3) Your win/loss analysis and conversations with your actual clients? What kind of software are they buying apart from yours? What kind of problem are you solving for them? For example, if your solution enables sales teams to be 2x as efficient and could garner between 4x revenue to the bottom line then you can pull their numbers and see what their potential ROI would look like if they used your product.
For example, if your B2B software solution costs $100,000 per year, but it helps bring an additional $1M at the end of the year, everyone would sign off on that deal.