SaaS companies often leave money on the table, due to a lack of appreciation just how important packaging (not pricing) is to their ability to capture revenue from their markets . The need to package better is seen as an important consideration in a 2020 EY Study of 700 tech companies.
Pricing Guru and Senior Director of Product Marketing at Zuora (Ex-Oracle – Head of Oracle Marketing Cloud’s Pricing Strategy & Operations), Natalie Louie explains how packaging tends to evolve with the growth of a company - to match market segments.
Her views below are excerpts from author Ajit Ghuman’s book, Price To Scale.
Companies often start with one offering, then start creating add-ons.
Many companies start with looking at their existing data, products and services and can simply start out with a ‘good’ package.
Then they start bundling your add-ons and new features to create different packages to serve different market segments -- eventually to get to a version of Good, Better, Best packaging.
At one of the smaller start-ups, I was with, we just had one package, which we started with. Later, we introduced a more robust package because customers started growing with us. They were outgrowing what they were habituated to using and we created a bigger package to increase our Average Selling Price (ASP).
Over time, as we moved upmarket, we decided we wanted to go back to our roots and service the start-ups that we used to work with. And then, we created a smaller package.
When your offering keeps growing, you may create a bigger package, and then sometimes you go backwards and create a smaller package again. I have seen this motion a lot, when I was at Responsys, Hired and now at Zuora with all our customers.
While all of this is a good problem, you also have to think about whether you as a business want to go after those smaller companies again or keep it Enterprise.
You have got to figure out what your target segment is and where to put your resources. But one thing is for sure — each market segment you’re serving needs to have the right packaging, pricing metrics and price points (including discount strategy) that delivers value to them.