How to define pricing and packaging for new products
In the latest episode of the Tekpon SaaS Podcast, host Cristian Dina welcomes pricing expert Dan Balcauski, the founder of Product Tranquility, to discuss the strategies behind defining pricing and packaging for new products. Dan shares his extensive knowledge of various pricing orientations and highlights the importance of metrics and understanding customer value.
Dan begins by explaining three common pricing orientations: cost-based, competition-based, and customer value-based. Cost-based pricing focuses on covering costs and is often a company’s starting point. Competition-based pricing considers the context and competitive alternatives available to customers. Customer value-based pricing aims to understand the value a company provides to customers and how to divide that value in a transaction.
To evaluate pricing effectively, Dan suggests looking at high-level strategic aspects and tactical aspects. Strategic aspects include meeting goals, analyzing the success of pricing changes or increases, and identifying reasons for lost deals. Tactical aspects involve analyzing the number of customers in entry-level plans, customer upgrades or expansions, and customized sales strategies. Metrics such as the percentage of deals lost to pricing can provide valuable insights into pricing effectiveness.
In the context of B2B businesses, Dan emphasizes that price is not always the most important factor. B2B buyers are often willing to pay more for guarantees and to mitigate potential risks. He also advises against using freemium models, which can have low conversion rates and undervalue the product. Instead, he advocates for offering free trials, as they allow prospective buyers to experience the product’s value directly.
The episode concludes with a discussion on the importance of monitoring metrics, such as the percentage of deals lost to pricing and competitive win rates. However, the accuracy of these metrics can be influenced by data hygiene problems and sampling bias. Dan advises companies to consider independent win-loss analysis conducted by an unbiased third party to gain valuable insights.
Overall, this episode of the Tekpon SaaS Podcast offers valuable insights into the strategies and considerations behind defining pricing and packaging for new products. Listeners gain a deeper understanding of various pricing orientations, customer value’s importance, and metrics’ impact on pricing evaluation. With Dan’s expertise and practical advice, companies can navigate the complex pricing and packaging landscape to succeed in the SaaS industry.
