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SaaS Pricing is a Positioning Problem [Podcast Recap]

By January 18, 2022February 6th, 2022Positioning, Pricing, Pricing Strategy, Product Strategy

Brendan Jarvis is the founder of The Space InBetween, New Zealand’s leading UX research company. I sat down with him for a chat on the Brave UX Podcast, where we talked about product positioning, pricing, and the importance of talking to your customers.

We also covered:

  • How to know if your product has excellent positioning?
  • Why do some companies struggle to produce what customers value?
  • And how to figure out what your customers are willing to pay?

You can listen to the full episode at the link below. Or, keep reading for a recap of the interview.

Brave UX with Brendan Jarvis – Dan Balcauski

What is positioning?

Positioning is an internal exercise a company undertakes to help frame their product or service in customers’ minds so that customers can easily understand it and help you highlight its differentiated value. A positioning exercise forces you to think through different variables, such as:

  • Who is your target customer? 
  • What problems do they have? 
  • What value can you offer them? 
  • What are their relevant competitive alternatives?
  • How does your product uniquely solve their problem?

If you think your company can be the best at everything, think again. It’s a crowded marketplace, and very difficult to get your voice heard as a generalist. That’s why I focus Product Tranquility around solving pricing and packaging problems for B2B SaaS companies. It’s how I stand out from the crowd.

Thousands of companies are now competing in every space. This image by Chief MarTech highlights the intense competition that is going on in just the MarTech sector. That’s why you need to be prescriptive about whom you’re serving and how you solve their problems.

How do you know if your product has excellent positioning?

Next time you’re out at a bar, have a colleague go up to a stranger and tell them what your company does. Ten minutes later, have a second person go up and ask that stranger what your company does. If they remember, congratulations—your company or product probably has excellent positioning.

If you really want to find out how usable your product is, bring it to a bar and have some inebriated people walk through it. You’ll find out how user-friendly your designs actually are.”

Dan Balcauski

But what about price positioning? Price positioning is a strategic choice that frames your relevant competitive set and the price-value relationship you intend to provide.

I like to use the automotive market as an analogy. Is your product the base level, the Toyota Corolla? Is it the premium player like Lexus or Tesla Model S? Or is it the luxury player like Lamborghini or Tesla Roadster? 

Because if I’m in the market for a Toyota and you’re trying to sell me a Lamborghini, it’s going to be a very short conversation. We’re not in the same market at all. And if you’re the Product Manager for Toyota Corolla, comparing your product against a Lamborghini is going to lead you down an irrelevant and time-consuming rabbit hole. You have to decide whom you want to target strategically.

Value is key to understanding pricing

All conversations around price are ultimately conversations around value. The market will set the price on non-differentiated value. Your role is to decide how you’re uniquely differentiated from the competition so you can know the value you can charge for.

Customers are trying to get a specific job done. I recommend analyzing your competition through the JTBD lens. It might just change your perspective—many SaaS companies are competing with spreadsheets, not that startup down the road. 

Be aware of your competition, but stay focused on your customers and their problems. Your goal is to solve the customer’s job in its entirety. It’s not just one feature you’re designing; it’s an end-to-end experience. And that requires a high level of focus and customization.

Is the market educated about the problem? Are your customers onboarded and supported while using your product? You need to wrap experiences around all these stages of the customer journey. And the experiences you create are something no rival company can easily copy.

Why is it so difficult for companies to build what customers value?

Customers rarely state the success criteria they will use to judge your product explicitly. They’re experts in their problems, but they often describe problems in terms of current solutions. 

Customers might say something like, “I need this pink button.” But why? Your goal is to drive past their initial language and into a higher order of conversation, one where you can figure out why they need said button and what higher-order problems they are trying to solve.

The best way to do that is by having one-to-one conversations with your customers.

Ask them to walk you through the situations that led to their purchase. One question might be: “What did you do the last time you had XYZ problem?” That’s because past behavior is predictive of future behavior. It’s a great way to get closer to the underlying core drivers of customer purchase decisions.

When talking to customers, a helpful maxim is that there’s no such thing as an impulse purchase decision. There is typically an awareness of a problem months prior, resulting in continuous agitation until the customer purchases when it becomes convenient.

Taking what customers say at face value won’t reveal this, however. Sure, they want to help you, but they’re unaware of what is essential to the interviewer. It’s on you to dig deeper.

How do you determine what a customer is willing to pay?

I’m always shocked by the number of companies that don’t ask customers what they are willing to pay. Not having willingness to pay conversations is as much a mindset as about specific techniques. The good news is that the methods are relatively simple. For starters, throw a number out there and get a reaction.

The Dutch economist Van Westendorp created his Price Sensitivity Meter (PSM), which provides helpful questions I love to ask during customer interviews. The complete Van Westendorp process is burdensome to ask in an interview setting, but here’s an abridged version:

1) At what price would this be so expensive that it wouldn’t be worth it? 

2) What price would be so low that you’d question our ability to deliver the product and its value?

You can also ask likelihood to buy questions. Have them scale their answers from 1: never in a million years 5: I’ll give you my firstborn child if you sell your product to me right here, right now!

I recommend using a mixture of these two techniques to elicit a set of numbers and then figure out how folks value your product or feature.

People often put the cart before the horse, developing a million-dollar project before doing any research as to how much they should charge. Do the customer interviews before you invest in product development.

Dan Balcauski

How much time and money should you spend on customer research? Well, it depends. What’s the value of the information you’re trying to get? And how important is the decision that this information is trying to drive?

You can reduce a considerable amount of uncertainty with 30 data points. After 30 data points, you need four times as many data points to achieve the same level of uncertainty reduction. So you need to weigh the investment required against the importance of the decision it’s driving and the required precision of the desired measurement. 

Positioning for SaaS success

If you want to solve problems in the long run, you need to make a profit. Otherwise, you’ll go out of business and not have the means to help the people you went into business to support. 

It’s like my reason for going on a meditation retreat: if I’m going to help others, I need to take care of myself first.

That’s why customer interviews are so important. You need them to identify the problems you’re going to solve–which is how you create value and profits. Gently push them when customers mention a problem. Ask them what they’ve done recently to fix that problem.

There are a lot of different emotional forces that can keep people in place. There’s a particular attachment to the status quo. Customers worry that they’ll get blamed if something goes wrong. They wonder if they can trust a sales representative.

You need to make sure the product team has access to the customers.

Dan Balcauski

I find simply addressing the elephant in the room the best option. Talk about the issues out in the open. By addressing the worries of customers head-on, you will build trust and decrease their hesitancy to invest in the future.

The ultimate takeaway I want to leave you with is this: talk to your customers. If you’re a Product Manager and not already doing that, stop reading and do that right now.

When running a business, it’s easy to lose sight of the customers’ needs when pulled in multiple directions by internal noise and putting out operational fires behind the scenes. I’ve found that all that internal noise ultimately doesn’t matter if you fail to understand your customers and their problems. 

Don’t be afraid to spend time positioning your product. Run those customer interviews and follow up with quantitative analysis. The more you listen to and understand your customers’ problems, the easier it will be to make the right decisions regarding positioning and pricing.