I recently joined Jay Stansell on the Product Coalition podcast to discuss the overlooked art and science of B2B SaaS pricing.
In This Discussion:
- Why value exists in customers’ minds, not in your features
- The problems with direct pricing questions and better research approaches
- How strategic bundling prevents sales teams from forced discounting
- …and more
Timestamped Overview
06:22 Strategic Pricing Framework Explained
08:43 Focus on Customer Value, Not Costs
12:07 Differentiated Value in Pricing Strategy
17:18 Understanding Van Westendorp
20:03 Customer Insight through Value Conversations
25:47 AI Innovations and Intercom Pricing
35:22 Prioritize Revenue Retention Strategy
38:59 Global Pricing Strategy Challenges
Value Exists in Minds, Not Features
“Customers don’t care about how many story points it took to build your feature, and they don’t care about the variable costs of your expenses that you have to pay to OpenAI. The value is not in the feature. The value is in the mind of the customer.”
One of the most persistent pricing mistakes is starting with the product instead of the customer. Engineers and product teams frequently fall into this trap: “This feature was expensive to build,” or “Our infrastructure costs for this AI capability are high, so we need to charge more.”
But here’s the uncomfortable truth: your customers don’t care about your development costs. They don’t care about your infrastructure expenses. They don’t even care about your margins. They only care about the value they perceive.
Value, like beauty, exists in the eye of the beholder. It’s not an objective constant like gravity that you can measure in a lab. It exists only in the subjective perception of your customers.
This is why improving your “value literacy” is critical. In pricing strategy, we need to distinguish between different types of value:
- Use value: The sum of all benefits a customer might receive (what economists call utility)
- Exchange value: The market price for undifferentiated value, plus or minus your differentiation
- Perceived value: What customers actually believe your solution is worth
Only perceived value drives willingness to pay. You might create a spreadsheet showing your solution delivers 50% higher productivity, but if customers don’t believe it or apply a risk discount because they don’t trust vendor claims, your actual pricing power will be much lower.
This is why any serious pricing exercise must start with deep customer understanding, not your feature list, development costs, or competitive feature comparison.
The Fatal Flaws in Direct Pricing Questions
“I just asked the one question, how much would you pay for this? It’s terrible for a whole bunch of reasons, but one of the reasons is that I never know what part of a scale somebody is giving to me because we tend to always have in our minds about things we may buy, a range of what would be acceptable to us.”
Another common mistake is taking a simplistic approach to pricing research. The most obvious error is directly asking customers, “How much would you pay for this?”
This approach fails spectacularly for multiple reasons. But most significantly, you don’t know if you’re getting the high, middle, or low end of their acceptable range. More robust approaches exist. The Van Westendorp Price Sensitivity Meter, developed by a Dutch economist in the 1970s, uses four questions to understand price acceptability:
- At what price would this be too cheap, causing you to doubt its quality?
- At what price would you consider this a bargain?
- At what price would this get expensive, but you would still buy it?
- At what price would this be prohibitively expensive?
Even more important than the specific methodology is understanding that quantitative pricing research should always follow qualitative research. Before asking about price points, you must understand the customer’s context, alternative solutions, decision criteria, and value perception.
Strategic Bundling Prevents Discount Disasters
“If [sales reps] start talking about a bunch of capabilities that the person on the other end of the call is not going to care about and they don’t have any way to carve that off, they’re gonna be left with the only tool most salespeople have, which is like, well, I know you don’t care about half this product, so how about I sell it to you for half the price?”
The third insight addresses a problem that afflicts sales teams everywhere: forced discounting caused by poor packaging. When your product bundles capabilities that specific customers don’t need, your sales team has only one option: discount the entire package.
This happens because most companies focus on the price point rather than the packaging. But packaging decisions such as how you group features, what pricing metric you use, and how you tier your offerings typically have far more impact on revenue than tweaking the price point itself.
The relationship between good bundling and sales conversations is direct and consequential. Good bundling makes it easier for sellers to have value-based conversations. Poor bundling forces them to discount to overcome objections about irrelevant features.
Wrapping Up Our Conversation
As Jay and I discussed throughout our conversation, pricing often gets treated as an afterthought in product development. Yet when approached strategically, it becomes one of the most powerful levers for SaaS company growth. Thanks to Product Coalition and Jay Stansell for hosting this conversation.
Want to learn more about strategic B2B SaaS pricing? Connect with me on LinkedIn or visit producttranquility.com.