As described in a previous post, most SaaS and online services companies can improve their profitability and growth through adjusting pricing and versioning strategically. Here are some key strategic steps needed for success.
Determine the value each customer/vendor is getting for a given product, tier, market, and category.
Measure the value your products deliver by looking at it from the customers’ perspective. For instance: if your customers are advertisers on your online platform, the value is NOT measured by the quantity of leads delivered but by the quantity of converted leads delivered and the related financial return to the advertiser.
When looking for opportunities to raise prices, or adjust your offerings, you want to be specific and contextual. You need to understand what the customer is doing with your product or service, how it impacts their business, what economic value they obtain.
Understand your price position relative to your competitors
Review the price and value of the competitive alternatives to identify your price position. If you are the market leader you may be setting the price for the market. If so, will your competitors follow or possibly lower their prices to capture lower-end market share? What will their new price-to-value ratio be? How do you compare? Do you have an advantage with some segments and not others? Some products and not others? Scenario analysis will help identify risks of increasing prices and guide your decision.
Seasonality of your business (if applicable)
Identify opportunities where it may be beneficial to vary prices throughout the year. Raising prices during times of high demand can significantly increase your top line; the key is knowing when to increase and when to pull back. Do not assume that all products in all pricing tiers and markets respond to seasonality in the same manner. Allow analysis to cut through any assumptions you may have.
Purchase and pricing psychology
There are many decision points in a pricing structure and strategy that should be informed by well-documented pricing and purchase psychology. Elements such as price thresholds, anchors and consumer behavior such as fairness and quality effects can help you avoid making mistakes that will inhibit purchase and adoption.
If you are embarking upon this effort and need guidance and analytics support, give us a shout! Info@profitwisehq.com
[Stay tuned for my next post: Designing the Implementation for a Price Increase/Price Change.]
