As Profitwell Strategist Rob Litterst states right off the bat, “between the no and low code tools, it’s never been easier to start a SAAS company, but it’s never been harder to stand out with competition in every single market”. When it comes to product pricing models, it may feel like every trick in the book has already been played. What are some tried and true methods for products to stand out in a crowded field and gain that momentum to become the category go-to?
Last month, we invited one of the top strategists in the game to speak for a packed webinar audience of product managers about how to use value-based pricing models as a strategic lever. Watch the entire session right here for all the insights, and check out the Products That Count Events page to see which industry executive is joining us this month from our Austin Chapter.
On usage and value-based pricing
Once a product is built, it’s time to start selling, but every product manager knows that the wrong pricing model can tank a product release. Rob uses Hubspot, Zoom, and Shopify to illustrate how value-based pricing models have proven effective in not only creating that elusive stickiness that product managers seek, but also made each the go-to leaders in their categories.
“Value-based pricing really has two key axes. There’s usage and there’s features, which can also be talked about as consumption and capabilities.”
“From a usage standpoint with their transaction fees, Shopify actually uses transaction fees as both a carrot and a stick. Shopify actually has their own merchant solution, and if you’re not using that, you get this 2% or 1.5% additional tax, which is the “stick” that’s pushing you deeper into their ecosystem. Essentially, it allows them to push people on to their own payment platform, which makes the product a lot stickier.”
“Start by understanding levels of usage based on demographics such as company size, annual revenue, department, role, etc. Then segment deeper by users, number of contacts, email sends, marketing campaigns, etc. Finally, understand what those segments care about by using relative preference to ask people to rank order and value propositions.”
On relative preference and freemium pricing models
Naturally, the goal of any product manager is to understand the user at as deep a level as possible, which means going beyond simply preferences. Rob shares his tricks to invoking the right responses from the user in order to decide which pricing model will have the highest chance of success.
”Video conferencing, at this point, is really more of a commoditized technology. Often we find that freemium works really, really well in those markets. However, the big thing with Zoom is they had a better product than their competitors with a combination of a product, pricing and packaging model that really worked.”
“From a value proposition perspective compared to a feature standpoint, you want to know how people’s preferences differ. One methodology we use is relative preference, and we force respondents to make trade offs in what they care about. We’ve found that when you ask people to rank or order things like value propositions or features, after the first one or two people have a hard time ranking things accurately.”
“The last piece – once you know who your users are, how much they need to use the product, what they care about, and what features are important to them, you want to understand how much they’re willing to pay. We’ve found that people are not great at telling you in a vacuum exactly how much they would pay, to the dollar, for a certain product. Instad, ask these questions in a range.”
About the host
Seasoned executive with three decades of experience envisioning, building, and operating software products and mission-critical platforms at startups to large organizations such as Microsoft. Throughout his career, James has held a diverse set of roles and developed expertise across leadership, product management, data science, IT operations, consulting, software engineering, and sales. As Chief Product Officer at Products That Count, he leads an online platform to help organizations learn the craft of product management and win as a market leader. As a coach, he leads mastermind circles to facilitate peer-to-peer learning across product management executives. As a podcast host, he interviews CEOs of companies held within Mighty Capital’s portfolio. Creator of the Career Strategy Framework and an online platform that teaches and coaches professionals how to reach their full career potential. Learn more at https://www.jamesgray.io.