The long term success of any SaaS company is aligned with its pricing and revenue generated. Pricing influences the purchasing decisions of customers. It plays into how you position yourself against other competitors in the market.
Given how critical the function is, the process of engaging with it, and adopting the right pricing strategy at the right time, can make all the difference between your company going boom or bust! Valuable sales may be lost with over-pricing, and tangible revenue may be squandered if you under-price.
How do you plan a pricing revamp to land this right?
Joshua Bloom, Managing Partner (North America) for the global strategy consulting firm - Simon-Kucher & Partners, elaborates on how they approach the structuring of pricing engagement processes for SaaS companies. He highlights the three important phases in the passage below, as originally featured in author Ajit Ghuman’s book, Price To Scale.
There are a few hallmarks of our approach at Simon-Kucher & Partners, when it comes to structuring the process of starting a pricing engagement with any software company.
- Diagnostic phase: In this phase, we develop hypotheses by looking at data — both internal transaction and usage. Along with this, we bring in pattern matching - of what has worked well and what has not, at similar companies (competitors or other software companies). We like to get it to a point where we have a strawman view of packaging, the price metric and other pricing changes that we would undertake, before we talk to any customers or prospects.
- Primary research phase: We then go out to talk to customers and prospects and conduct primary research. But we’re not just asking direct or open-ended questions in these conversations — we have people react to specific scenarios, often for trade-offs. At least 80 percent of projects have some type of primary research component.The classical approach to that is conjoint analysis. It’s a gold standard, but conjoint analysis is not the perfect answer for every project. It works really well when you have a certain number of features or project options to test, or when you can get a significant sample size. It works best in consumer settings and works okay in small business software settings — but it does not work very well in enterprise software settings, or the further you get down to the B2B end of the spectrum. Different methods can be used. We use fixed trade-off screens or ask a series of probing questions. But ultimately, we’re just getting reactions to some of the strawman concepts we’ve come up with. We’ll often have a couple of different scenarios to walk people through, because that’s where we start to get not just feedback, but also begin to make projections about how the market will respond. These depend on which path we go down, and what the price sensitivities may be.
- Implementation phase: Once we have now found the right strategy, we think about the right implementation approach. We spend a lot of time with clients thinking through how we migrate the installed base of customers, communicate the changes, and train our salespeople to defend or uncover value. That’s usually the third leg of the stool for a lot of our projects.
The time spent on the three phases ends up being pretty equal for each but depends on the research complexity level in a project.
We could be doing research across multiple channels in 10 different countries for various products — it can get pretty complicated.
But for a plain vanilla organization with a relatively simple product set, the time spent per phase probably looks more evenly distributed — like a month each or around that, for a month-on-month project.