The concept of value
As sales veteran Anthony Iannarino says, “The greater the perception of value, the greater the likelihood you gain a commitment that moves you forward together.”
As consumers we are familiar with the concept of value. More than this, we are drawn to it. We’ve all heard the phrase “buy cheap, buy twice” and are perhaps even familiar with PPW (price-per-wear) economics.
We tell ourselves that it’s fine, even advisable, to choose the more expensive jumper if it’s going to last longer than the cheaper option which will lose shape after only a few wears.
This logically makes a lot of sense as we quite naturally think ahead and focus on the long-term impact of our actions.
What we are analysing in these moments is value – or, in other words – with all things considered, which choice gives me the best return on my investment, whether that be money, time, or something else entirely.
This long-term mindset is even more important when we are calculating the value of subscription purchases, like a magazine subscription, or perhaps, a SaaS product.
Establishing the value of a product sees your customer moving through a series of thoughts:
– How much do I want this?
– Why do I need this?
– How much do I need this?
– Will I really use it?
– What are my other options?
– What benefits will it bring me?
– How does the cost compare to the benefits?
– How might it save me money in the long term?
– How might it be a waste of money?
The more complicated your product and the more complicated your customer journey, the longer this process takes and the more questions that are added into the mix.
What’s any of this got to do with pricing?
When thinking about your product pricing options consider this: having complex pricing options makes this process of value assessment even more complicated than it already is.
If you have multiple tiers of product pricing, whether that’s based on number of users or access to features, your potential customer has more work to do.
Not only have they been through the first process of assessing value, they now enter the second phase of weighing up the value behind your pricing options:
– What am I gaining if I go for a higher priced option?
– What am I losing if I don’t?
– Am I paying too much if I go for a higher tier?
– Is there a significant difference between the plans?
– How does each tier compare to the tiers of competitors?
Got a headache yet?
This process forces the customer to spend more time questioning the worth of each of your product features and expend time and energy looking for ways around paying for the higher tiers.
Complex pricing encourages people to think reductively and look for reasons why they don’t need all of your features so that they can avoid paying more.
Wouldn’t you rather they were thinking positively about the many ways they want to use your product?
One thing we considered when switching from a tiered pricing model to a simplified one was that we didn’t want to punish customers for loving GoSquared and wanting to use it more.
What’s holding you back from choosing a simplified model?
The most commonly cited downside of a simplified pricing model is the fear of leaving money on the table: what if this customer would have paid more?
But is this a realistic way to look at pricing models?
There are many more sardines than whales in the sea.
When this thought comes into play we are often thinking of the rarest type of customer. The whales.
These are the customers a lot of companies spend the majority of their time chasing, and getting a whale on board is great; they bring a big name and a big cheque. However, they also take significantly more time to manage and keep happy – you know, and they do too, that they are a big deal for your business. This means that these large accounts can be incredibly demanding on your resources.
But this is not the only power of a large customer. Through churning they can disrupt your entire company in a way that a number of smaller customers can’t.
Do some comparisons. How many small accounts make up the revenue of one large account?
We rarely think about the other side of the equation – all the smaller, higher volume, customers who may have walked away because they couldn’t work out if they are a “start-up” or “entrepreneur” plan.
This is where the real losses are.
Over time, lots of smaller customers will be more valuable than one or two large customers. Our friends at Born Social have the motto “For Davids, not Goliaths” and this renders true here as well, the collective power of many will overcome the big fat cheque of one.
Don’t abandon your catch
To stick with our fishing metaphor: opting for a simplified pricing model doesn’t mean throwing back the whale.
A policy of simplified pricing doesn’t mean that the basic rate is right for every single customer that comes your way. There will be the occasional big fish that needs special attention; significantly more time from your team, custom features, or high volume use.
You can treat these special cases as exactly that: special cases.
For 99% of your customers, one flat rate is likely the best option.
We spend so much time making sure our brand message is clear, and doing everything we can to make sure that our customers and potential customers understand how our product delivers them value – don’t let your pricing model, far down the customer journey, become the moment where they start to question all of this hard work.
Have you tried it out? Do you already follow a simplified pricing plan? Reach out to us on twitter – we’d love to hear from you.
This post was inspired by an episode of our GoSquared podcast on the topic of simplified pricing.