On this episode of Starting SaaS, hosted by the ebullient Ella Richmond, we navigate the intricate landscape of pricing in SaaS. We touch upon how pricing practices diverge across industries, with a special focus on the shift from perpetual to subscription-based transactions in the SaaS space.
Throughout our discussion, we explore how pricing extends beyond the simple exchange of value, influencing numerous aspects of a business. We delve into the different dimensions of value – use value, exchange value, and perceived value – and the roles various departments play in shaping these. We also reflect on the potential pitfalls in gauging customer willingness to pay, highlighting the need for pricing to form a critical part of these conversations.
Join us as we untangle the complexities of pricing in the SaaS industry and its crucial role in driving business success.
Key topics we covered in this episode:
- Transition to subscription-based pricing in SaaS: Delving into the shift from perpetual to subscription-based transactions and its impact on the SaaS industry.
- Understanding use value, exchange value, perceived value: Exploring the different dimensions of value and their influence on business and pricing strategies.
- Complex B2B sales and increasing perceived value: Unraveling the complexities of B2B sales and strategies to enhance perceived value.
- Behavioral economics in pricing decisions: Discussing how principles of behavioral economics can inform pricing decisions.
- Context and psychological desire in pricing: Understanding the role of context and customer psychology in determining pricing strategies.
- Value conversation before willingness to pay: Analyzing why discussing the value should precede willingness to pay in pricing conversations.
- Evolution of technology companies during the dot com era: Reflecting on the transformative phase of technology companies during the dot com boom and its influence on the current SaaS and software landscape.
Timestamped Outline
07:16 The Failures of online grocery delivery economics and Web 3
09:14 Software’s transition to subscription-based models
18:22 Economics and psychology.
22:15 Pricing’s relationship to value and volume.
41:25 Understanding customer value
45:09 McDonald’s and software packaging
Potent Quotables
The Influence of Behavioral Psychology on Economic Decision-Making:
“There’s something about we respond to buy 1 get 1 free offer, or coupons, in a way that’s not predicted by standard economic theory.”
— Dan Balcauski
The Trap of Understanding Customer Desire for Innovation:
“When I hear ‘our customers are willing to pay,’ it usually means we asked them if they wanted it. But if I say do you want this, for $10? That’s an entirely different question.”
— Dan Balcauski
Psychological Desire as Willingness to Pay:
“When we talk about price, we’re really trying to measure psychological desire. And it’s a psychological phenomenon of human desire. That doesn’t mean it’s not measurable. We do this in sociology and psychology all the time.”
— Dan Balcauski
Competitive Differentiation:
“Who is the next best competitive alternative that we’re being compared to? And how do we differ or not?”
Effective Value Communication:
“Can your sales team communicate your value effectively? Can they leverage those psychological shortcuts that help buyers make decisions?”
Navigating Complex Sales:
“As you’re navigating a complex business-to-business sale, especially more than, like, an enterprise situation, you don’t have a single buyer. You have potentially a buying center. Can they tell the value story that helps increase the perceived value enough for each of those specific groups?”
— Dan Balcauski