Marketing for SaaS and Web Apps / Freemium / Pricing

Yes, Pricing is a function of Marketing, but when the rest of your marketing, promotion, or even your SaaS product sucks, who cares about your price!

From time to time (a lot more recently it seems) I get an email that I think more than just the person that asked it would benefit by reading the answer. A client with a SaaS shopping cart solution that we did some high-level strategy work with earlier this year, including tiered pricing, just wrote me about their current situation. They sent in the following:

Lincoln - We're convinced that $19 is the worst price point ever! $19 is being interpreted as $20 by our market and even our partners are listing it as $19.99 when it is really only $19. It gets worse, here's an excerpt from one of our partner sites: 

"Once we’ve updated your products... we're ready to open the store to the public! The monthly fee to keep the store live is just $19.99. If you’re already deciding that you don’t want to pay a monthly fee, maybe you only have a few items, then you should go for our Paypal solution for smaller stores. Take the exact same model you see above and subtract $19.99 per month and the cool pop-up-cart option."

That means we're basically losing 5% of out potential revenue for no reason whatsoever.

Here is my response, and I think you will find some value in it, too...

Unfortunately, it means a lot more than just 5% left on the table. You guys don't have a price problem - you have a serious marketing problem!

But let's address the $19 price point first. So, you say its $19, but even your partners interpret it as $19.99 or basically $20. To your point, that is 5% left on the table. So raise your price - keep your current customers at $19 (or don't - but give them fair warning!) and bump it up. Don't test it - don't mess around with it, just raise it. Deal with tiers and bundles later. If $19 is $20, maybe $21 is $20, too... or $22. You have some very real intelligence built up over the last couple of years - and your gut - telling you that is the right move, so make it happen.

Interestingly, this is the opposite of most "charm pricing" we see, where $19(.99) is generally thought of as in the tens and $20 is in the twenties and there is a big gap there. This is tried, true, and the way its been for... centuries? Of course, we know charm pricing is generally used in low-end or discounted scenarios, to make people think they are getting a great deal. But, we've seen this odd evolution on the web with down-market products / services where charm pricing has the opposite effect. People see $19(.99) as in the twenties or that you're trying to pull something. You've just realized it - and having a partner or someone that should know better fall into that trap too, well, I think it speaks for itself.

But like I said, its more than just a price issue - its a marketing problem; a perception problem. When one of your partners says its basically just an Ajax widget and tells his market that if they want to save $20/mo, they can go without that little feature. That little feature, by the way, IS your business. This isn't just slightly concerning, this is frightening... or at least it should be. My advice to you is to raise that value perception quick or you're going to get stuck in commodity world... a world where $20 might be the top of the price range.

Overall, you guys are in a very weird spot. What you have right now is a commodity with very poor value perception by the market. Your value proposition is actually quite compelling, but your messaging and ability to raise the value perception of the market is the real challenge. You have two choices... raise the value perception of the market or drop your value proposition down to match the perception of the market - that is, stop offering so much and give them what they want - a commodity. I'd go with the former, if I were you.

How do you do that? Value messaging - and that might include a new brand and market segmentation - that speaks to What's In It For Them?... what do they get? They being your customers, or your customers customers.  Somehow that message isn't getting across... even for the people making a lot of money using your system. Start researching and brainstorming on the value they derive from your service - not the benefits; those are close-ended. Focus on the Value they will derive from the benefits of your service. Much of this, by the way, will not be found in those extensive datasets of yours.

In the past you've even had some agencies tell you that $20 is basically the most they'll pay per client and that if you were to raise the price significantly they'd find a different solution. Yet they're making what - hundreds or thousands per month from their clients by leveraging your product? What's in it for them? Obviously revenue - how can you make it easier or faster for them to generate more revenue, from more clients?  How can you better align with them on allowing them to do more of their core business?

This is the stuff we talked about guys, its all about your value proposition intersecting with the value perception of the market. Right now, they are completely misaligned and it is up to you to align them... the only real option for you is to work to raise the value perception and that is all about What's In It For Them - WIIFT! Focus on that metric and let me know how it goes...