Most SaaS and online start-ups enter the market with one product, service or solution. They have to start somewhere and often are testing a perceived need or new technology in the marketplace. But just because they have one “product” or “solution”, doesn’t mean that they need to offer only one choice to their customers.
SaaS and other online services start-ups must be highly focused on customer adoption and velocity of sale. Many factors can influence customer adoption, but from a marketing strategy perspective, one of the critical design decisions is the design of the offering (pricing) menu.
What is an “offering”? It is the total sum of products/services/experience the customer receives when they purchase. It is the what (product and/or service) when (immediately, after implementation, after mail delivery, etc.) and how (digitally, physically, through their email, phone, snail-mail – with panache or in a plain brown box) you are delivering to the customer. The offering design is where all the 4 P’s of marketing come together. This is especially so with SaaS and internet services companies who have the ultimate flexibility in constructing offerings. And therein sits the challenge. You have so much flexibility, how do you decide on the right set of offerings for your market? There are many decisions to make in designing your offerings & pricing – but let’s talk about the number/complexity of choices.
Where you end up, of course, is going to be influenced by several things: 1. the complexity and scope of your products/services, 2. the breadth of your market reach, 3. your channel/sales model and 4. How new/innovative your solution is. Depending upon the configuration of these elements, you will have different options open to you. Let’s set the stage for these decisions by looking at some of the extremes, and then looking at a few good examples.
There are three extremes I see in offering complexity for high tech and online services companies (Usually there are “two extremes” but bear with me).
- Everything: Present and include every capability as an option and use multiple metrics. This can be overwhelming and especially difficult if it is a new product space where customers must be educated or a metric they are not familiar with. Too many choices, too much new information causes, or metrics that cause you to make calculations cause “brain freeze” and an inability to make a decision. Some companies manage this complexity and different levels of value in their markets by creating a configurable menu offering so that each customer builds their own based on their particular needs or parameters. This is a way to manage a lot of complexity but spit out one price or offer for that particular customer. Sumo Logic has a great example of this. I like that when they configure your price they also give a concise value story versus an on-premise alternative.
If you are going to show a lot of complexity and choice, you have to create a structure which allows customers to either self-select easily or groups those details into 3-5 supersets.
- One thing: Everyone gets the same offer. No variables, no permutations. Even though different customers have different needs or levels of usage. Many companies start here and stay here for longer than they should. Eventually, most companies end up somewhere in the middle. I argue that you should never have just one offer.
Let’s say you are Zippy’s Online Education Hub. Customers come to you to access knowledge and how-to-templates to build their own online education portals. When customers go to your site they see you have one offer, a subscription for $399 per user/per month. Here is the problem. If you have a single offer, then the customer decision set is either “buy or don’t buy”, or it is “buy my solution at $399 per month or buy my competitors solution for $299 per month” (even if those solutions are vastly different). You do not want this to be their decision set.
- Invisible: You can’t find it. Literally, there is no indication of how or what you will pay. No clue as to how the offerings/capabilities are structured, what the prices might be, how they charge you for it. Nothing. This is old school software world pricing and in 2014 it just doesn’t cut it. This can occur when a previously transparent online software or services company gets acquired by a big software company (see www.taleo.com) or a smaller software company like www.taxware.com chooses to keep it hidden (if you can find any indication of pricing here let me know!) This lack of transparency could be because a company is unsure of the market price levels, is trying to tackle a large range of customers with different use cases or levels value, and/or is being driven by a sales leadership that doesn’t want to be pinned down to a price point or price structure. This is an issue of transparency. I am a big fan of transparency in offerings and pricing – if it is done well it benefits both the company and the customer. It forces discipline and decisions of commercial focus at the company and allows the customer to feel comfortable with the purchase process and the sales relationship. And the biggest benefit is that transparency will increase the velocity of sale.
What to strive for? A relevant limited set of offers (3-5) is usually the best path. Include a brief trial if at all possible. Why is it so important to give a choice? If you give customers 3 offers at 3 different price points, then their evaluation becomes: Do I buy solution A, B or C from Zippy? Which one is the best fit for me? What do I get for $199 vs. $399? You have framed their choices between these three. You have also anchored their expectations about what is included in the offer and the starting, middle and high price points. If this is clearly and concisely communicated, then the customer spends their time evaluating which offer fits best for them (and you can steer them with other tactics). The structure of your offering has a lot of influence over customer’s perception of relative value and ultimately the time it takes them to act and their ultimate decision. Dan Ariely, author of Predictably Irrational, explains the concepts of frame of reference and anchoring much better than I can. http://www.amazon.com/Predictably-Irrational-Revised-Expanded-Edition/dp/0061353248/ref=sr_1_1?ie=UTF8&qid=1391440135&sr=8-1&keywords=predictably+irrational
Here are two great offering/pricing examples below that give a manageable set of choices that target specific segments, a call to action, and enough information to make a quick, comfortable and informed decision.
Dropbox has just one product, but it prices on the variables of storage and number of users. With these two variables, you could create a large number of options, but they limit it to three with an action or information button on each.
Zendesk has more options, but each one has a clear message and a limited set of capabilities listed. The drill down lets you control which one you explore. This is super clean and easy to both self-select and evaluate. My only question on this one is the $1 starter fee. Not sure that provides a good anchor for the $59 offer, which is clearly where they want the customer to go.
Both of these companies have to bridge both a consumer market and a B2B market. This is a big offering and pricing strategy challenge, but meeting that challenge effectively forces more transparent than those companies who are strictly B2B. This ultimately benefits their velocity of sale across the business.
There are many considerations in constructing your offering: Do the offers align with each target segment needs? Do the price points meet your financial goals? Do the offerings compete effectively with competitive alternatives and highlight your differentiation? Please post any ideas/challenges you have related to offering design and pricing strategy, or great examples you have seen.
