The Power of Pricing
As kid entrepreneurs with lemonade stands, we quickly learn an important lesson: Sell a cup for 25 cents and you need to sell four cups to earn a dollar. Sell a cup for a dollar and you only need to sell one cup. That’s the power of pricing.
As Mark said:
“[Pricing] is just such an amazingly powerful thing. But what I find is so important about pricing is when a company steps back to say: How is it that people value our product? How much could we charge based on that value? They start to understand their products and their business on such a deep level that it could transform the way they run their business."
Pricing Ownership Within the Org
More often than not, the Product Marketing function owns pricing. But is that the right move? Mark said it depends:
“It depends on what part of pricing we're talking about because pricing is such a huge topic. The part of pricing that most of us think about is: Who's gonna set the prices? Who's gonna pick the list price? But pricing also is: Who's negotiating the price? Who’s setting the price escalation policies? Who's running the deal desk?”
In terms of who should own the list price, Mark recommends Product Management or Product Marketing.
In his own words:
“Those are the only two organizations in a company that truly understand the value our buyers get from our products. The possible exception to that is sales … but salespeople have a different incentive to not try to capture as much value as we can.”
But let’s not forget about Marketing. As Kyle added:
“Marketing can play a really critical role in pricing and should have a seat at the table … Pricing is so fundamental to the positioning that you want to have in the market, your target customer, how you talk about value and ROI. And so, for me, I would challenge the marketers and CMO to really educate themselves on pricing and take a seat at the table in pricing decisions.”
Many Companies Make THIS Common Mistake
SaaS companies are tasked with acquiring customers, retaining customers, and growing customers. As Mark said:
“The biggest problem I see is that companies don't focus on the last bucket and that's to grow customers. There are lots and lots of companies that say ‘We need to land and expand!’ But they only do the land. They never worked on the expansion. They don't put conscious effort into it.”
What does growing customers have to do with pricing?
“If we've created the right packaging, our customers will upgrade from our good to our better to our best. And so now we're expanding in that way.”
The Normalization Of Usage Based Pricing
(Wait, is normalization even a word?) Kyle correctly hypothesized that usage based pricing was going to get normalized in 2021. And as a result, the customer value management role supersedes the customer success role.
In Kyle’s words:
“As usage based pricing becomes more common, companies can't just close the deal. We just closed a $100,000 dollar deal and then, you know, pass that deal over to customer success and say, ‘Alright, we'll see you in 364 days for the renewal! Hope you're successful in the usage model!"
Customers can stop using a product at any time. And when they do, they turn.
“Customers need to be seeing value on a continuous basis—and it just shifts the mindset from ‘Customer success owns the renewal’ to ‘Every department at the company has a role in driving greater value and adoption.’”
Listen to the full interview.
