This article originates from a presentation at the Product Marketing Summit, San Francisco in 2022. Catch up with this presentation, and others, using our OnDemand service.
My name is Dinesh Chandrasekhar, and I’m the VP of Product Marketing, Customer Marketing, and Analyst Relations at LogicMonitor. I’ve been in the industry for over 27 years, 10 years of which I’ve spent managing pricing for various large corporations.
This topic is something that's near and dear to my heart. I want to talk about pricing in the context of product marketing and the challenges that we face. We’ll explore how to address those challenges and improve our enterprises’ pricing strategies.
Am I going to give a one-size-fits-all solution? Absolutely not – there’s no such thing. What I am going to tell you is that most companies face similar challenges, so if you take my advice with a pinch of salt, you should be able to tailor it to fit your needs.
In this article, I'll be addressing:
- Common pricing challenges
- Key tactics and strategies to drive pricing impact
- The PMM’s role in pricing
The price is NEVER right! Common pricing challenges
Yup, I lied in the title – the price is actually never right. That's what you’ll inevitably hear from your sales teams: “Oh, the pricing is too complex,” or, “Our competitors’ pricing is much better.”
If that's always the case, how do you create suitable pricing for your enterprise so that you and your sales teams are successful? That's the question I’m here to answer.
If you've ever done a win-loss analysis as a product marketer, one of the top reasons that you will hear from sales reps as to why a deal was lost is that the pricing isn’t competitive.
However, if you talk to the customer, they might give you a more nuanced perspective on why they went with a competitor.
Still, time and again, this whole pricing conversation keeps slapping you in the face and you want to know how to fix it, so let's talk about some of the key challenges.
Legacy price lists and SKUs
In my view, product marketing should own pricing. That's when pricing strategies are the most successful.
Now, there are organizations where product management owns pricing, and while I wouldn't call that a bad idea, it should be a collaborative exercise. Owning pricing doesn't mean that you're dictating it for the entire enterprise, but you should have a big say in managing the price book.
One of the challenges teams may face when managing the price book is legacy SKUs – products that were created in a different shape or form five years or six years ago or that were designed for on-premises use but now are on the cloud.
The customer is still paying the same old price, and you wish they were paying more. However, there’s no easy way to migrate them because the customer is like, “If you change the price, I'm going to your competitor.” This happens a lot, and it's a big challenge.
The price list hasn’t been refreshed in a while
If you don’t refresh your price list from time to time, it gets stale. You’ll find that while your reps completely understand your old pricing, they’re not tuned into the latest trends.
Because of advances in the cloud and SaaS-based offerings, new pricing strategies like pay-as-you-go have emerged in recent years.
If you don’t refresh your price list to keep abreast of these trends, not only are you going to look stale, but your pricing won’t be compelling for your customers.
The price list is being refreshed too often
You can’t refresh your price list too often either; if you do, guess what? Customers are going to feel like you’re nickel-and-diming them or you’re not sticking to what you promised them three months ago.
To avoid this, you really want to make sure you’re changing it for the right reasons and at the right intervals.
Inconsistent pricing across multiple channels
Inconsistent pricing can start to creep up from the moment you have partners. Different vendors might offer bundle pricing, education pricing, and so forth.
With these multiple types of price lists, discrepancies happen. Your list price for one SKU may look different on some other price list. You update a price here, but it may not update there – all kinds of challenges emerge.
Poor sales enablement
You may be updating the price list at the right intervals across the right channels, but if you have poor sales enablement and don't support the sales teams in talking to customers about the pricing and the value, your pricing model will fail.
The same applies to customer communications; you have to keep the customer updated on why you're making certain changes to the pricing model and do so without freaking them out. Sticker shock is a major cause of lost customers.
The pricing model was one person's brainchild
I've seen this happen many times. An SME in the company has declared that this is how pricing should be done, and now they own it and pricing is no longer a collaborative effort.
There’s no consideration for what’s going on in the market, the sales team’s input is ignored, and there’s total tunnel vision in the pricing strategy. That's not going to play well in the market.
The nature of the beast
Because of the way software has evolved across different verticals, pricing has become complex. You can’t just say your solution is three bucks a pop kind and leave it at that.
I dealt with Internet of Things (IoT) pricing in an earlier job. I wanted to check out how our competitors approached this, so I looked at some of the major cloud vendors that offered IoT pricing and played around to see how much it would cost if I were to deploy 1000 devices on their cloud platforms. There are so many options and bells and whistles out there that it’s impossible to figure out the final cost.
If I, somebody who is entrenched in the industry, cannot figure this out, how is the customer supposed to? How are they supposed to plan their software budget? We’ve made pricing super complex, and that’s a problem we need to solve.
You’re in a crowded and competitive market
If, like me, you're one of the thousands competing with similar vendors in the same space, differentiation is probably a major challenge for you.
Unless you're one of the three large cloud vendors who can dictate the price knowing that your customers will suck it up and pay, you have to figure out how to make the commodities you’re selling stand out from the crowd.
As a product marketer, you talk about differentiation all day long. You also talk about your value proposition, but the value proposition cannot just be about the competitive differentiation in your features – it has to talk about the value your product provides. You need to shape the customer’s perception of your product. That’s what dictates the price.
The iPhone is a great example. When it first came out people were like, “Ha! Who'd pay $499 for a phone?!” But look at them today: there’s a good chance you have an iPhone – I have one too. It was ridiculously priced, but its value was pitched so brilliantly that we were all willing to pay for it.
The iPod is another great example. When it was introduced, it looked like yet another portable music player. There was no value differentiation, and it came with a ridiculous price tag of $399.
People didn't want to pay that, but then their product marketing team did something super smart: they seeped in the value proposition through celebrity endorsements and said you don't have to buy an entire album of songs; you can just buy one song – whatever song you like!
That value proposition was different from any of the CD players out there. With those CD players, you had to buy the entire CD, whereas with the iPod, you could just buy the one song that you really liked for 99 cents. That immediately drove sales, and in the first 18 months they sold more than 3 million units.
This is what we want. Ultimately, we’re all selling commodities, but the way we differentiate ourselves from the competition is what will help us to manage the price of those commodities pricing in a very, very positive way.
Price-matching with heavy discounts
Another effect of selling in a crowded market is that you can find your sales reps offering hefty discounts.
If a prospect points out that they can get the same set of features from a competitor for $100k less, what does your sales rep do? They immediately drop the price by $200k.
Now there’s a third vendor offering a similar product for $300k less? Sure, we'll drop it by $400k. And among all this heavy discounting, the product's value gets lost.
Value-based pricing is hard but to make it work, you need to set certain standards. Having a proper discounting structure is vital and enforcing that is absolutely critical.
We all have discounting structures, but then there are overrides – a VP will say, “Sure, I'll take care of it,” then before you know it a customer is getting 80% off.
What's the value of the product then? When the renewal comes around, there’s no room for negotiation. You cannot bring that customer back 80% off to 30% or even 50%. It’s a lost cause.
Customers want better discounts during renewals
At renewal time, customers always want to keep the same price but with a better discount. If you've ever dealt with a procurement team, you’ll know that they are very keen on getting better pricing from you. They may have got an 80% discount, but they’ll still want another 10% off when it’s time to renew.
It is at this point that you can talk about value differentiation. Tell them about all the new features you’ve introduced and explain why the pricing has changed. That will change the dynamics of the conversation.
Key tactics and strategies to drive pricing impact
So what should we do in the face of all these challenges? Let's talk about a few tactics and strategies.
Conduct a pricing analysis
If you've ever done a pricing analysis, you know it's not an easy process, but I encourage you to do it. Can you do it alone? No, you cannot. Can you do it internally? Yes, you can. Should you hire somebody from an external agency to come in and do it? You should.
There are pricing experts out there that can weigh in on the pros and cons, do the competitive analysis, talk to your customers, do lots and lots of external interviews, and come up with a proper quantitative analysis that shows what will work best for you. Now, this is not a silver bullet. You’ll still have to tweak their recommendations for your own needs, but it's a great place to start.
It'll typically take around 10 to 14 weeks, and it costs money as well – anywhere from half a million to two and a half million dollars depending on the size and complexity of the set of SKUs you have, the kinds of customers that they have to talk to, and the complexity of the situation itself.
It’s a big but worthwhile investment that I highly encourage you to look into.
Use a pricing committee
Pricing cannot be a one-person job – it takes a village. You need a pricing committee that involves different stakeholders from across the organization – product marketing, product management, sales, revenue operations, finance, customer success, customer operations… I could go on.
The reason key stakeholders from all of these groups need to be part of the pricing committee is that whenever your prices change, these are the people that will feel the impact. Your sales folks are going to have questions about how to talk to prospects about the price of new products.
The renewals team will want to know how to communicate price changes to existing customers. RevOps will be asking about the financial implications of any changes.
There are a zillion questions when it comes to introducing a new SKU or even changing an existing SKU, so you need a committee that looks at the bigger picture – not just a lone pricing manager with tunnel vision.
I've been in situations where somebody felt like we weren’t getting enough revenue so they just bumped the price up by $10 a pop. The repercussions were immediate.
Customer success teams were inundated with calls from customers wanting to know why we’d changed the pricing – were there new features? No. Were they getting more value? No. The customers were understandably unhappy. Having a pricing committee prevents those kinds of catastrophes.
Adopt agile pricing processes
Red tape is a horrible, horrible thing, particularly when it comes to pricing. You can very easily find yourself watching an excruciatingly long train wreck in slow motion while you wait for a pricing decision to be made.
I've been there. I've been on my knees begging to be allowed to decide on a price because my customers were waiting.
To avoid these kinds of situations, you need agile processes, and your pricing committee can help you with that, approving prices more quickly so you can move forward and take your product to market.
Talk about pricing strategies right at the beginning of every NPI process
If you're introducing a new product, don't wait until after it has been conceived, built, and taken to the customers to talk about pricing.
Instead, you want to have the pricing conversation as soon as somebody brings up the idea. What customer pain point will it solve? What value will it bring? What is the unit of measure? What revenue impact will it have? You want to start discussing all of these questions right then and there.
The PMM’s role in pricing
Early on in my career, my then-boss asked me, “Dinesh, remind me again, what do you do as a product marketer?” and I ended up listing out everything I do in my role.
I turned that list into a slide with around 20 bullet points, and I use it with my teams to this day to explain all of the responsibilities that are expected of a product marketer. My point is that the role of a PMM is a challenging and multifaceted one.
As one of product marketing’s key strategic functions, pricing has a special place on the list, and you should take pride in that. Functions don't get more strategic than this.
The realization of how we take the product to market, make it successful, and ensure the customer sees value in it is all right here. With that in mind, let's talk about what the PMM’s role is in pricing.
Listen to the voice of the customer
Sometimes we can’t see the forest for the trees. We talk to a sales rep who says, “Hey, my customer doesn't like the new pricing model,” and we take that at face value.
We don't even go one click down and ask if we can talk to the customer. It’s time to change that. We don't want hearsay. We just want to make sure that product marketing can directly talk to the customer and get that feedback straight from the horse’s mouth.
Erik Mansur
Talk to your internal stakeholders
There are so many people within your organization that are part of the buyer journey. They need to have a say in how pricing should be structured. They see that impact. Somebody in renewals, for example, will see the difference that a change in pricing makes, so listen to them.
Review data… a lot of data
There's so much data available to us, but we don’t always take full advantage of that. Dig into your CRM and look for answers to the following questions:
- How did the customer buy this product?
- When did we start the conversation?
- What was the original price point?
- What was the price when we closed the opportunity?
- Why?
Next, talk to your accounting team and the customer to get to the bottom of any discrepancies between the price that was originally offered and the closing price. That kind of digging will give you fresh insights into the buyer journey and the value that the buyer sees in your product.
Compare competitive pricing
Next, you want to look at the competitive landscape. As product marketers, we do this all the time, but looking into competitive pricing specifically will give you tremendous insights.
I mentioned earlier how in one of my past roles I looked at our competitor’s IoT pricing. That gave me some awesome points to take into conversations with our customers.
When a customer told me they were thinking about going with Azure, I would say, “Open up your laptop, and tell me how much it costs. I'll wait,” and I would fold my arms and sit there for 10 minutes. They would not be able to find the price. That's how complex it is.
Then I’d give them tiered pricing that was easy to understand – we charge X amount of dollars for 1000 devices, period. No bells, no whistles, nothing. I’ve just made their budgeting conversations a whole lot easier. That’s just one example of how you can use competitive pricing to your advantage.
Educate, evangelize, and preach value
PMMs educate, evangelize, and preach value all day long. It’s something that we take pride in.
As you're evangelizing, it’s super important to convey the value of your product and talk to your sales teams about how to communicate that to customers in all of their conversations.
You can’t just say, “Here’s our product – it costs X amount of dollars.” Talk about the value first, make them feel it, and then talk about the price.
Own the pricing framework
The pricing framework is something that we should all want to own. I’ve loved owning it in the many different companies I’ve worked with.
Even when we’re taking on those horrendous legacy SKUs and trying to move them into the cloud space, these kinds of challenges make our work really exciting. I hope you feel that excitement as well.
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