Never compete on price
One of the toughest things about marketing is knowing when the pricing is right.
Brand marketing rarely cares about the specifics of the price point: only in so much as they want it to be in line with the brand.
Classic marketers generally think about pricing in terms of where they are in the market place.
Growth marketers think about pricing as a vital stage in the customer journey.
In fact, whole businesses exist and survey frameworks exist just to help people get this vital little number right.
So when I read Tyler Hakes' article Never Compete on Price the other day, I did a double take.
Maybe if I just charge $10 instead of $100, no one will question it. But, competing on price is a losing strategy.
What can consultants selling services teach us about pricing B2B SaaS products? A lot.
Pricing: The wisdom of insecurity
The reality is that if you’re worried about the price you’re charging, it likely means:
- You’re selling something of little value (commodity)
- You haven’t defined the true value of what you sell
- You haven’t communicated that value to your customers Each of these problems leads to the same outcome — a race to the bottom.
Value is elastic.
A fire extinguisher is worth infinitely more to a person whose sleeve is on fire than the one swimming in the ocean.
And while you're not selling fire extinguishers, the value of your SaaS is just as variable between one company and another.
Let's take an example.
People want to optimise their websites for conversion.
Most people will start off with a tool like Google Optimise because it's free to use.
But the people who get really serious about A/B testing will move on to a product like Optimizely.
And that's certainly not free.
So what's the message here?
Pricing based on value to a user is a far more effective way to price. When a product becomes mission critical, the price tag also becomes mission critical.
What are you selling really?
Our customers are not buying blog posts. We sell growth.
Tyler talks extensively about his industry: content marketing which, more than most, is full of low quality companies running work through content optimisers and getting paid small amounts for doing so.
There are a few dozen high quality companies who are producing genuinely useful content aligned to their customers goals.
And that's the key difference: products and services that can afford to not compete on price are aligned to the deep needs of their customer.
The companies who hire Fiverr freelances to create content are the same ones who see traffic as the way that they get more customers.
But we know that's not true right?
Instead, companies like Tyler's align to deep needs of their customers: the need to grow and acquire customers for decreasing CAC.
And that's a genuinely valuable proposition.
A three step framework for not competing on price
What does it look like in reality to do this? It's one thing to say that your product is worth more than you're currently charging, it's another to do the work to get it to a better model.
Tyler proposes a three step framework for not competing on price.
- Define Your Value on New Terms – what is it that I am actually selling to the customer? Is it '1000 uses a month' or is it '10 new customers a month'? (Insert your own business)
- Elevate the Value – "What is the most valuable version of what I’m selling?" RightMessage creator Brennan Dunn has a really great course on this for freelancers but many of the rules apply to any marketing problem too.
- Communicate The Value – Communicate the value add that your product gives beyond the value created by your pure existence e.g. your competitors product builds landing pages, yours builds high value lead gen opportunities. This is about effectively positioning your SaaS for your customers.
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