Is Modular Packaging the Answer? - The Medallia Story
Sometimes it’s not about the best product or offering. It’s about the customer experience, the appeal and the resonance. This EY report clearly highlights that the days of “build it and customers will come” have long gone, and getting the packaging right is as important as the product itself, if not more. The report goes on the further say, “...as SaaS companies focus on creating value for their customers, product packaging is the secret weapon to increase that value for priority customer segments, further enhancing their willingness to pay.”
Price To Scale has already featured some expert insights on the salient features (and the not-so-salient) of Good-Better-Best Packaging - one of the more common packaging approaches used by SaaS companies. With this blog, I dive deep into another approach - Modular Packaging. Read on to see if this is better suited to your needs.
Why Modular Packaging?
Modular packaging is essentially a more flexible approach to packaging that can enable you to tailor a bespoke offering to prospects. It can help capture greater revenue than standardized packages that either offer more capabilities for some prospects than they need (leading to shelfware) or don't offer all capabilities needed for some prospects (leading to essentially not delivering all the value that is possible and thereby leaving money on the table).
In this case, unlike Good-Better-Best packages, we are not forced to come up with a universe of just three packages. In principle, this approach can lead to a high degree of permutations and combinations of features and capabilities.
Here’s how I embark on a modular packaging exercise:
- List down all notable features of your product and then map them to the use cases that they enable for customers. This obviously requires a clear understanding of all the reasons for which your product is used, and thereby the product's ability to solve the 'use cases' is how its value will ultimately be attributed.
- Take care to ensure the features don't overlap between use cases and that these are MECE (Mutually Exclusive Completely Exhaustive). This is important because these feature groupings that solve specific use cases will become the modules at the end of the exercise, and you can't have a specific feature in two different modules.
- Once you have identified use cases and grouped features together that solve for them, the next step is to estimate the value/importance placed on these use cases across different customer segments. For example, enterprise customers may place a high value on security or encryption-related features, but an SMB may not. This step then provides insights on which modules should be bundled together in a base package and which features may be added-on as à la carte modules.
Modularity Case In Point: Hidden Differentiators at Medallia
This case study, from my time at Medallia, illustrates a facet of packaging that can be useful for companies selling an enterprise product, either facing a competitive challenge or a need to justify higher product ASPs. In many cases, products such as these have hidden capabilities that can creatively be brought to the fore to create a more favorable customer perception.
Back in 2013-2014, Medallia had recently gone through a series of funding rounds and had been gaining considerable traction in the market. Medallia had always been the leader in the Customer Experience Management SaaS category and had been charging a premium price. At the same time, we had onboarded a brand-new sales team that was chartered with rapidly scaling Medallia's growth, which included goals around achieving even higher product ASPs (Average Selling Prices). Parallelly, our value proposition and benefit statements started to look surprisingly similar to that of the competition, largely because the competition had started to adapt and adopt a lot of their value proposition to match ours. This left us in a conundrum. Prospects would ask us why we were priced so high when other vendors were making similar promises to them. While we could definitely show them our superior client roster and success stories, we were missing a crucial 'why' behind our superior product. The reason largely lay not just in the visible features of our product but a superior product architecture that allowed us (and uniquely us) to serve the needs of giant Fortune 500 organizations in a way competitors could not.
At this point, we commenced an exercise to create a marketecture (a marketing architecture). This exercise results in a hierarchical, market-oriented representation of the Software, which breaks a monolithic product into specific modules. These modules can be given names that allude to their differentiation and value, something that wasn't apparent beforehand. Once every module within a marketecture is defined, a new sales deck is created around this functionality, capturing why it is important, what it does, how it works, and associated customer success stories.
At Medallia, one of the modules that we packaged and named distinctly was 'OrgSync.' OrgSync was named to denote Medallia's capability in mapping highly complex and fluid organizational hierarchies into its software which could then aid user management and analytics. At some organizations, we could support as many as 70,000 users. Something that the competition could not. The act of crisply defining this module, along with differentiators and customer success stories, provided a shot in the arm of our sales team. They were better able to handle price-related objections and even put the competition on the defensive.
The key takeaway from this case study is that packaging is not just an exercise of outlining which features to charge money for, but about clearly communicating the value of the product such that its value proposition becomes clear and the price is perceived to be fairly justified.
For more on modular packaging, do check out the 5-step mantra by pricing veteran Johnny Cheng on how to get your Modular Packaging exercise right, as published previously on Price To Scale.
This is an edited excerpt from author Ajit Ghuman’s book, Price To Scale. Grab your copy now on Amazon.com!