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The Answers to Your SaaS Pricing Problems Are Not in the Building [Podcast Recap]

By June 21, 2021August 21st, 2021Pricing, Pricing Strategy

I recently sat down to talk with my friend Rebecca Kalogeris, VP of Marketing at Pragmatic Institute, on their podcast Pragmatic Live. I’ve been a massive fan of the Pragmatic folks from back when they were Pragmatic Marketing, so I was super excited for this conversation. I still have their Pragmatic Marketing Rules on my office wall! In this episode, we spoke about the ins and outs of how SaaS Pricing and Product leaders need to use qualitative and quantitative data. We touch on three of my favorite Pragmatic Marketing rules:

  1. An outside-in approach increases the likelihood of product success.
  2. The answer to most of your questions is not in the building
  3. Only build solutions for problems that are urgent, pervasive, and that the market will pay to solve.

Please listen to the episode in its entirety below, or keep reading for a synopsis of our chat. 

Pragmatic Live Episode

After building and pricing products at various SaaS companies, I’ve gained a lot of experience (and scars) regarding how to best leverage qualitative and quantitative data and the benefit of using both when attempting to paint a complete customer picture.

Let’s dive in.

Building the Customer Story: A Balancing Act

As we build world-changing products, we are always trying to get closer and closer to the ground truth about what is going on in customers’ lives and how our products can help alleviate their struggle. To do this, we leverage whatever data we can get our hands on, both qualitative and quantitative.

As a self-professed data nerd, I love numbers. Truly. I became an engineer because I loved math, and I took all the econometrics, statistics, and analytical courses I could in my MBA program. Quantitative data is widespread these days. With so many analytics tools available, there are various ways to get numbers relating to your business. But quantitative data can only get you so far. It’s only half of the customer story, and while it is a vital half, it is only half.

If your business leans heavily on quantitative data, you want to look at collecting more qual. If your company relies heavily on qualitative research, you want to look at collecting more quant. It’s a balance, and you need to be careful not to tip the scales too far in either direction.

There’s No Substitute for Talking to Your Customers

To understand your customers and take your business to the next level, you need the full customer story. You need to know what drives their decisions and why.  When studying Marketing Research at Kellogg, my professors ingrained in me the need to precede quantitative analysis with qualitative insight. The reason for this is because you often don’t even know the proper framing of the hypotheses you’re trying to prove out with the quant side without executing the qual first.

Qualitative data is more often overlooked than quantitative because it requires consistent human engagement, which means talking to customers regularly. A common refrain from Product leaders is that they don’t have time to talk to customers. While this might make sense on the surface, talking to your customers should be your number one priority.

To ensure this priority is fulfilled, put a system in place to perform qualitative research consistently. One way to approach this is to set up a system where you have three to five customer calls every week. With an Email/Zapier/Calendly system or a Product Ops team to support you, these can be automatic and don’t require additional planning overhead.  In this way, you can collect consistent, accurate, and helpful qualitative insights regularly.

Think of talking to customers as akin to going to the gym: it’s not necessarily something you look forward to, but when you’re finished, you’ll always feel better and understand what problems are essential!

Understanding Customers: Segmentation Is Key

The point of market research is to discover the needs of your customers. And most importantly, those needs that they are willing to pay to solve. But different customers have different needs, and this is where segmentation comes into play.

I find that the demographic-based personas are nearly useless. So what if a product team learns that I’m a 39-year-old male living in Texas? That might seem like valuable information, but it doesn’t give them insight into my needs or why I purchase or use one product over another. Unfortunately, demographic segmentation seems to be the default approach, leading to a lot of disillusionment with segmentation and persona development within companies.

Because of this, I highly recommend focusing on behavioral or needs-based segmentation instead. Behavioral and needs-based segmentations offer much higher benefits than demographic-based ones because they are more actionable. In addition, they outline the unique pain points experienced by different segments, leading directly to differentiated value and willingness-to-pay to solve those pain points.

The Relationship Between Segmentation and SaaS Pricing & Packaging

When I run SaaS pricing studies for clients, customer segmentation is invariably the first step to the pricing and packaging exercise.

Our understanding of customer segments directly relates to how we package and price our products. If we understand all the things that a particular segment of customer values, we can wrap that in an attractive package. It makes the buying decision easy for your customers, decreasing the time your sales teams need to educate the customer on which offer is best for them (i.e., decreased CAC).

Proper segmentation also allows us to make intelligent choices around price levels that map to value delivered and willingness-to-pay. The last thing we want to do is stretch the balance between price and value to the point that the customer is not willing to tolerate it. If we neglect this when creating our offers, we may sell the product to customers, but it’s unlikely we will retain them in the long term.

Parting Thoughts

SaaS Pricing and Product leaders have an incredible number of priorities vying for their attention. So I’ll leave you with some parting thoughts to help you focus and grow your product and career.

First, pay as much attention to how you’re going to retain your customers as you do to acquiring them in the first place. This perspective impacts what features you build, how you price and package those features, what customers you’re targeting, and the supporting systems that allow you to understand how customers are successful (or not) post-sale.

Second, make sure you develop a facility with the business metrics that your senior leadership talks and cares about. It will give you that much more persuasiveness as you’re trying to move your initiatives forward. When it comes down to it, two things move business executives to action. The first is business results (i.e., the numbers). The second are stories, the best generally coming directly from the customers’ mouths (i.e., the human element). PMs must bring that human component to balance the numbers out. Be the strong leader in the room, flagging early warning signals based upon data. And complement the quantitative data with the compelling human story elements that bring your customers’ struggles affecting those key business goals to life.