How To Evolve Pricing Plans In A Large Segmented Market
In 2020, Gartner noted that, of the worldwide annual IT spending of $4 trillion, SaaS represented a growing portion of spending. This was expected to account for $105 billion in total revenues, and is forecasted to generate $141 billion in 2022.
With this kind of increase in volumes, companies must proactively adopt the right kind of packaging and pricing changes to remain relevant, competitive and ahead of the curve.
As this McKinsey article suggests, “The pricing function should lead a robust cross-functional assessment designed to match the right tools to the organization’s specific challenges while building in flexibility and accounting for evolving needs.”
So what should you keep in mind when you are primed to roll out changes?
Software Pricing & Packaging leader, Jan Paternak, Head of Pricing at Zoom, Inc and former pricing lead at Citrix. shares some valuable insights, as seen originally seen in author Ajit Ghuman’s book, Price To Scale.
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When you have a new product, you can test more ideas as you don’t have a well-established customer base to be careful about.
For us (at Citrix), most of the products under consideration still had a large body of subscribers, who should not be rushed too much.
How do you change the line-up but not cannibalize revenue from the existing customer base?
You could increase the attractiveness of a product and boost new sales, but risk losing some existing customers, from ongoing or recurring subscriptions.
The key here is to be proactive about change, let it happen on your terms, rather than having a displeased customer contact you.
Customer Segmentation
Balance this with segmenting the existing customer base and offering slightly varying things to different cohorts.
Some use the product very often; some got a deep discount when they signed up, as they negotiated well. Some bought 100 seats and are using 7; others are using 70.
Considering all the variables, one needs to segment the customer base and vary the approach.
Proactively and creatively offer alternatives. Stay upfront on prices going down and offer either a better option for the same money, like an upgrade, or a discount (with some strings, not unilateral concessions), like committing to more time or getting an add-on.
Repackaging and Renaming
It also helps to create a new line-up and modify it to be quite different from the old one. Taking the same tiers and discounting them makes the comparison too easy for the customer.
Even purely from a marketing perspective, packages should be called something different, like changing ‘Pro’ and ‘Elite’ plans to ‘Premium’ and ‘Advanced’, with variances in the feature set.