Forrester Vice President and Principal Analyst Duncan Jones says, “Best-in-class pricing includes clear pricing and packaging as well as a policy that promotes sales confidence.” Packaging is very much at the heart of a good pricing strategy. Getting it right is a delicate balance – showing all or too many of your cards would mean you may have nothing left of value to charge for, and the entire plan could fall to pieces. On the other hand, by holding your cards too close to the chest, and giving away too little, can affect the adoption that you need.
So how best to approach packaging, and make it work for you?
Pricing veteran and former Director of Product Marketing at Gainsight, Johnny Cheng weighs in on how to create a modular packaging solution, using a systematic exercise. This was originally featured in author Ajit Ghuman’s book, Price To Scale.
Looking at my past experience, one thing that worked really well was solution-based selling. We created modular solutions — think of them as Lego pieces. We could tell a salesperson, “Here are your Lego sets, you can put them together however you want.” But there was a price tied to each module. It was almost like a packaged-plus-à la carte hybrid model.
In order to develop these Lego pieces, I did this packaging exercise (which I do at all of my companies) in the following steps:
1. List out: We broke down every single feature and just listed them all out. These usually end up in the hundreds.
2. Group up: Once we had these, we looked through different lenses for how to bucket these capabilities into what I call modules - capabilities that are natural to group together, like things a set of users would commonly use.
3. Test: When these bucketed modules were created, we started going through iterations to test them against customer segments to see whether they fit that segment’s usage.
4. Rearrange: We also checked to confirm if the features that formed the modules were mutually exclusive and completely exhaustive (MECE) or not. Based on the testing, we broke up or combined these modules further.
5. Categorize: Finally, we categorized the modules we arrived at - based on their sophistication, price point, value, and a bunch of historical analyses about how they typically performed, adoption, and more.
Going through these categorizations, we started noticing patterns that helped decide packaging:
- What if these products are of very high value, they’re table stakes, and used by everybody? These went into a base package.
- What module does only the most sophisticated customer see, is of very high value, and increases adoption? This could be its own standalone add-on module.
The caveat with this approach is that it requires a fine balance, and not listing out a hundred things.
What you do want is to group the modules to a point where the salespeople can understand it. Then, they can sell the value of each individual one, and it can carry a discrete price.