Last month, I had the pleasure of joining Dave Erickson and Botond Seres on the ScreamingBox Technology & Business Rundown Podcast. We dove deep into B2B SaaS pricing strategy, covering everything from freemium models to willingness to pay. If you’re building, selling, or investing in SaaS, several counterintuitive insights are worth your attention.
But one topic particularly resonated with listeners: the dangerous practice of copying competitor pricing.
The Competitor Pricing Trap
When CEOs tell me, “We’re pricing at $X because that’s what our competitor charges,” alarm bells start ringing. Here’s what I shared on the podcast:
“When you blindly go and copy your competitor from there, whether it’s their price level or how they put their feature sets together into bundles, you’re inheriting a bunch of unknown risk that you don’t understand.”
What makes this especially dangerous? I’ve witnessed this scenario repeatedly:
“I’ll have a client, and they’ll be like, ‘Competitor Y does this, and the CEO loves how they do that, and they want us to follow it.’ And then a month later, I’ll be talking to the pricing guy at that other company and it’s not uncommon to hear, ‘Oh yeah, that thing? We hate that. It causes all these problems, and we want to get rid of it, but we can’t because of XYZ reason.'”
This is the pricing paradox that’s costing companies millions.
Listen to the full conversation or continue reading the recap below!
Timestamped Overview
00:00 SaaS Pricing Strategy Insights
11:01 Work Disruptions and Reskilling Challenges
18:21 Strategic Customer Focus and Pricing
24:10 Aligning Trials with Customer Value
30:17 Confusion from Free User Reviews
33:39 Contextual Value of Products
40:11 Problem-Solving Beyond Industry Segmentation
47:00 Strategic Pricing and Competitor Analysis
52:04 Van Westendorp Pricing Method Explained
53:57 Understanding Customer Willingness to Pay
01:01:34 Streamlined Go-to-Market Strategy
01:06:10 Pricing Strategy & Review Cadence
Key Topics We Explored on the Podcast
Beyond the competitor pricing trap, we covered several crucial aspects of strategic pricing:
1. The SVCS Model Framework
I introduced my strategic pricing framework—SVCS (Segments, Value, Competition, Strategy)—which helps companies systematically develop pricing that drives growth:
- Segments: Who are your customers? What do they need?
- Value: How does your product help customers? Why is it important to them?
- Competition: What other choices do customers have?
- Strategy: How will you sell your product to the right customers?
2. Value-Based Pricing Fundamentals
We explored how true pricing power comes from differentiating value for specific segments. As I emphasized:
“Most executives think WHAT you charge determines success. In reality, WHO and HOW you charge matter more.”
3. Why Freemium Rarely Works for B2B SaaS
I didn’t hold back my opinion on freemium models:
“I absolutely hate freemium. I spend all my time in B2B software. I almost always think it’s the wrong choice, except in very rare circumstances. The problem is those exceptions are shoved down your throat as the reason why it works.”
Best-in-class freemium companies convert just 1-3% of free users—is that really worth the organizational headaches?
4. Willingness to Pay as a Proxy for Perceived Value
I explained how willingness to pay reveals what customers truly value:
“Your willingness to pay, we could use as a backdoor proxy to the perceived value… I’m sort of indifferent between buying this product and not buying it at that particular price. But I will never pay a price more than my perceived value of what that product is worth.”
5. Pricing Through History
Some historical context resonated with listeners:
“We don’t think about things like the price tag being an invention, but there was a point back in history not too long ago where you walk into a store and price tags as a thing didn’t exist.”
This historical lens helps us understand why pricing isn’t just a number—it’s a communication system.
6. When to Review Your Pricing
On the frequency of pricing reviews:
“We wanna treat our pricing like a product and make sure that it’s getting some regular review and attention. If you haven’t touched your pricing in two years, it’s probably time to do a serious reevaluation.”
7. Strategic Customer Segmentation
We discussed moving beyond basic firmographics (company size, industry) to truly understand how customers define value:
“Very few people get up in the morning and say, ‘I’m gonna buy some software because I work at a large enterprise.’ No. That person wakes up and they say, ‘I’ve got a job to do. I’ve got a problem.'”
The Smarter Approach to Competitor Analysis
Rather than blindly copying competitors, here’s what I recommend:
- Ask better questions: Instead of “How can we copy them?”, ask “What would have to be true about our business for a similar approach to make sense?”
- Look for underlying principles: Extract the strategic thinking behind competitors’ pricing rather than the surface-level details.
- Balance your focus: Aim for approximately 70% focus on your customers and 30% on competitors to maintain market awareness without losing your unique value proposition.
- Understand trade-offs: Recognize that every pricing decision involves trade-offs that may not be apparent from the outside.
Moving Forward
If you’re rethinking your B2B SaaS pricing, remember that pricing isn’t just about picking a number. It’s about understanding your customers and making smart choices about aligning what you’re selling with the value you provide—and the value your customers perceive you provide.
As I noted in the podcast, if you never lose deals because of price and customers constantly tell you how cheap your solution is, you’re almost certainly leaving money on the table.
If you’d like to discuss your company’s specific pricing challenges, connect with me on LinkedIn or contact me at Product Tranquility.