How do you create a consistent pricing and packaging framework for a broad product portfolio?

Companies, particularly those that take a portfolio of products or solutions to market need to establish pricing and packaging principles. These foundational values and practices of what we do, or don't do, and why? help us to move faster, eliminate anecdotal opinions, and set teams up for a predictable approach to pricing and packaging decisions.

Getting there can be easier than it sounds:

1. Be explicit about the values that should inform your P&P decisions. For example, at Atlassian, one of our values is "Don't fuck the customer". Unsurprisingly, that value comes up a lot in pricing discussions, and it means we tend to gravitate towards greater transparency in commercials, and more predictable pricing models, such as price-per-user vs. more adventurous (and complex) value-based pricing on unconventional metrics.

2. Identify the trade-offs. Being clear on the trade-offs and implications of your pricing and packaging will help your teams to move the slider accordingly in the iterations and tests towards a high-confidence pricing and packaging decision. Some examples include:

1. Customer Value vs. Revenue:

   • Trade-off: Setting a lower price to attract more customers might decrease short-term revenue but potentially increase market share.

   • Consideration: Find the right balance between customer value and revenue generation to ensure sustainable growth.

2. Complexity vs. Simplicity:

   • Trade-off: Offering numerous pricing tiers and options can cater to diverse customer needs but may complicate decision-making.

   • Consideration: Strive for simplicity while still meeting customer demands. Too many choices can lead to confusion and indecision.

3. Competitive Position vs. Profit Margin:

   • Trade-off: Pricing too aggressively to undercut competitors may impact profit margins, while pricing too high might discourage potential customers.

   • Consideration: Align your pricing strategy with your value proposition. Be aware of how your pricing compares to competitors and whether you can justify higher prices through added value.

4. Customer Segmentation vs. Universality:

   • Trade-off: Creating specialized pricing plans for different customer segments can cater to specific needs but may require additional resources to manage.

   • Consideration: Segment your customer base as needed but avoid overly complex pricing structures unless it's essential for your business model.

5. Discounting vs. Perceived Value:

   • Trade-off: Offering discounts can attract price-sensitive customers, but it may also diminish the perceived value of your product.

   • Consideration: Use discounts strategically, such as during promotional periods or for specific customer segments, while maintaining the perceived value of your product.

6. Free Features vs. Premium Features:

   • Trade-off: Offering too many features for free may limit revenue potential, while withholding essential features behind a paywall can deter users.

   • Consideration: Balance your free and premium offerings to provide value and encourage users to upgrade for additional benefits.

7. Short-Term Gain vs. Long-Term Loyalty:

   • Trade-off: Focusing on short-term profits by raising prices may lead to customer churn, while maintaining lower prices can foster long-term loyalty.

   • Consideration: Consider the long-term impact of pricing decisions on customer retention and lifetime value. Sometimes, investing in customer loyalty pays off in the end.

8. Innovation vs. Stability:

   • Trade-off: Frequent changes in pricing and packaging may disrupt existing customer relationships, but staying stagnant can hinder growth.

   • Consideration: Innovate and adapt your pricing strategy, but communicate changes transparently and provide ample time for customers to adjust.

9. Profit vs. Market Share:

   • Trade-off: Focusing on maximizing profit may limit market share growth, while aggressively pursuing market share may impact profitability.

   • Consideration: Determine your strategic priorities – whether it's rapid market expansion or profitability – and align your pricing strategy accordingly.

10. Customer Acquisition vs. Customer Retention:

    • Trade-off: Focusing solely on acquiring new customers can neglect existing loyal ones, while over-prioritizing retention may limit growth.

    • Consideration: Strike a balance between customer acquisition and retention efforts. Ensure that pricing and packaging decisions support both aspects of your business.

3. Establish scalable governance. Being clear on the R&R around pricing will help deliver a consistent outcome. Who is the Driver? Approver? Contributor? And who needs to be Informed? Is there a pricing council that makes the final yes/no? And who should have a voice on that board? What happens in the case of a disagreement? Is there a deadline? or can teams be sent back to re-work proposals? what kind of evidence is needed to support hypotheses? Expressing answers to these questions in the form of a governance structure will take much of the complexity out of the process.

Ultimately, pricing and packaging decisions should align with your overall business goals, market positioning, and customer-centric approach. Regularly assess the impact of these trade-offs and adjust your strategy as needed to optimize your pricing model for sustainable growth and profitability.