Many #startup and new products usually claim to be “disruptive”
There is one thing you want to avoid (or be cautious of) disrupting
Even if you are a far better product
That is your pricing model
This is especially true for #b2b from my own experience in working with over 50 clients
Here is a playbook of sorts
- Understand how your competition is pricing
Research what is the pricing model and actual pricing numbers of your competition. Many of your potentials customers would have learnt about this already or will dig it up when you start a sales cycle. They will automatically compare even if you keep telling them otherwise
- What is your comparative pricing strategy
Whether you like it or not and independent of what you say in your marketing, customers will put you into an existing category (and usually that is a good thing for you – because it brings alignment with an existing budget).
– Are you going to be comparable to rest of the players?
– If lower, why and how will you use that
– If higher, why and how can you justify
- What kinds of incremental pricing changes can you bring?
When you research your competition pricing and market trends, seek to identify what is it that the market and actual customers do not like or find burdensome about pricing.
– If it is high entry pricing, then lowering your costs for entry can help.
– If customers are unhappy about the add-on costs, you can eliminate those
– If your competition puts limits on number of users, servers or something else which limits value, then consider relaxing or eliminating such limits
In most mid-market and enterprise business solutions, simplification at the onset can be a good strategy.
- Don’t eliminate levers in the name of simplification
Most of the times customers are ok to pay more when they get more. Identify the levers that correspond to more value.
– In some cases it could be more users, more use cases, more data..
– In some cases it could be faster response, higher reliability, 24-7 availability
Keep some levers for you to be able to charge more, but only when customer derives more value.
Pay as you go and pay for use are such levers that many businesses have come to accept.
- When to do something completely new or “disruptive”
If you are product that is actually creating a new category (Think ChatGPT and tokens) or want to change the business model (ecom platforms charging a cut of transactions) then you must have the money or level of adoption to pull it off.
In general this is uncommon, so evaluate carefully. Innovative pricing models run into lot of resistance and even if you can pull it off, count on spending a lot of time and money to educate the market.
A buying frenzy like we are seeing for GenAI tools and solutions is a rare occurrence.
What else do you consider when defining your competitive pricing strategy?