Marketing for SaaS and Web Apps / Freemium / Pricing

Well, it has happened yet again. The latest SaaS pricing fiasco belongs to Chargify, a startup recurring billing and subscription management company that announced their pricing this week. It played out for them just like with Hootsuite a few weeks ago, GitHub and KISSMetrics before them, and who can forget Zendesk, the one we wrote about back in May. Unfortunately these pricing fiascos are not new; but the backlash from Chargify's pricing announcement has been particularly vitriolic - on both sides.

I spoke to David Hauser, Founder of Chargify, while he was writing his lessons learned post-mortem on the pricing fiasco. I told him straight-up that forced transparency - or faux transparency - is ugly and I think he needs to be quite candid about what happened. His post went up this morning, judge for yourself, but keep his words in mind as you read it: this never should have happened in the first place.

The gist of what he told me on the phone - and what comes out in his post - was that the whole backlash came down to one issue - communication. In most cases, when someone comes to Sixteen Ventures with a "pricing" problem, it is almost always a "marketing" problem, not the numbers in the price itself.  And communication is absolutely a part of marketing.

David admitted that while they talked to some of their users when developing the new pricing strategy - the segment of the user population that they wanted to be customers - they ultimately did not seek input from or communicate their plans to - including properly managing their expectations - the rest of their free users. This means, when those users - part of a voluntarily captive audience, by the way - heard about the new pricing, it was when it was announced publicly.

So, the biggest amount of pushback was generated not by the new "prices" but simply because this group of people that thought they were part of some "inner circle" of beta testers or valued users turned out not to be. This was like a slap in the face and they revolted.

As part of their response - planned or not - Chargify has been pretty open about the fact that they basically "fired" the users of the system that were a drain - the freeloaders. Let me be clear - this is absolutely a valid strategy in what we refer to as Intentional Alienation. However, their tactical execution of the strategy was not well thought-out - if at all - and poorly executed. Quite simply, there are ways to accomplish that without coming across publicly as insensitive or harsh or worse. This is probably the biggest failing of Chargify's response to this fiasco thus far - one that they openly admit to.

But then Chargify - after the backlash started - ended up doing the same thing as every other company in this position does - they publicly backtracked on the pricing. In this case, Chargify offered a lower-end price via a bundle that was apparently created to be used for behind-the-scenes grandfathering. This is still an open issue with them, but they did offer it publicly, even though as I write this it is not yet a part of their official pricing page. All of this had the unintended consequence of further indicating that they really did not understand their market as much as they said they did when they created their new pricing.

If the research really was there - not just digging through data but talking to customers, figuring out where value perception and value proposition intersect, etc., something they admit they did not do for the majority of their user base - then they would have stood fast in their stance. But they didn't. And most don't. In addition to hurting their authority as a trusted resource that understands their clients, they also insulted many of their users directly in the process. And the vast majority - if not all of this - could have been avoided with proper communication early and often.

The weird part of this is as marketers, executives, or founders in and around SaaS and Web Apps, we start to wonder what is going on. Are these pricing fiascos orchestrated and manufactured to get publicity? I mean, Chargify - who previously had not been featured on Techcrunch or in Inc. magazine - found themselves getting a great deal of press. And, on Techcrunch, their major misstep and the backlash was accompanied by a demo of their product! Mixed messages anyone? Not really if you consider Techcrunch to be the TMZ of the Web 2.0 world and that any bump from them doesn't really translate to real world success.

But, it sparked this conversation between a former client and me via email:

Joe - "Lincoln, so bummed here... we went out of our way to grandfather in existing customers when we changed our pricing plans. We got exactly zero complaints, but also zero PR. All these other services jack the prices for their current users and then get all this press. Did we mess up by not screwing over our existing customer base when we changed our prices?"

Me - "Not all publicity is good publicity. These things don't go away as quickly as you think. I've been there to help companies clean up from these fiascos and believe me, it doesn't go away just because it drops from the Techcrunch homepage. One company, for instance, was out fundraising a few months later and this issue came up time and again. It was hard to get over. It really hurts. But, they proved that they could overcome that and they got funding.

The fact that you raised prices and didn't hear a peep is indicative of your dedication to your customers, customer service, and ultimately marketing. Assuming you've had growth beyond your grandfathered base, you did the right thing. No, bad publicity is bad publicity. And when you are a core piece of someone's early-stage business (consider who Chargify is directed at) it goes beyond that... 'bait and switch' it isn't - legally - but it really leaves a very bad taste. Congratulations on the fact that you raised prices with ZERO negative impact."

Joe - "I know, I know. It's just annoying to see other companies do stupid things and then get a lot of press. The amount of time + effort I put into the pricing plan/communicating the change (actually, the effort of the entire exec team here) was so big, and to have no one really 'notice' is a little sad. On the other hand, in 6 weeks over 15% of our user base was on the new plans - which are higher margin and higher ARPU, I might add - so that part feels pretty good. And conversion has stayed the same, so that also feels good. I guess I'll take that!"

Me - "Absolutely. All of the fiascos and you did it right. And you are building a REAL business in the process. Not a startup. Not an 'app' - but a company. Ultimately, that is a commentary on the nature of 'news' today anyway, right? What leads? The little boy helping the old lady across the street? Nope... other stuff. But it is the stuff we don't hear about on the news that keeps the fabric of society together."

So, in Chargify's world, the backlash was not so much about the price itself. In fact, almost across the board, the majority of the response has little to do with the price, it was in the communication of the changes and managing expectations.

I wrote a post back in May when Zendesk went through their big pricing change. I could replace Zendesk with Chargify, GitHub, Hootsuite, etc. in that article and it would be an almost perfect fit. I don't want what happened to Chargify or Zendesk to happen to you. It doesn't have to happen to you. It shouldn't happen to you. So read our post and don't make the same mistake these companies have. The damage is real and it doesn't go away over night.

If you are thinking about raising prices or are in the early stages of developing your pricing strategy, perhaps are in beta or have a completely free product and are working to monetize and develop pricing, please read this post and then purchase the 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.