The Secret to Boosting Your Software Pricing Power
Value management and pricing strategy consultant Steven Forth explores the surprisingly powerful role emotion plays in setting the right price for your software.
For many years pricing experts were focused on economic factors when figuring out how to set B2B prices. Once upon a time, they claimed the balance of supply and demand determined prices. Some economists still believe this. And for pure commodities in perfectly competitive markets this is a useful model (though, as an early-stage company, I hope you are not in a commodity market). Meanwhile, value-based pricing experts spend a lot of time trying to determine differentiated economic value. Companies with large numbers of transactions use big data to estimate customer willingness to pay.
But is this all there is to B2B pricing?
The Role of Emotion in B2B Pricing
Think about your own buying behaviors. You can start with something simple — laundry soap for example. In reality, there is not much difference between one brand and another. But there are big differences between the prices command by the top brands and what you can buy in a discount store. Procter & Gamble are the masters of this. They invest a great deal of time and effort in understanding your motivations, emotional responses, and connecting these to brand benefits. The resulting price has little to do with economic benefits and everything to do with human emotions.
The emotional response a buyer has to your offer has a big impact on your pricing power.
What is pricing power? Warren Buffet has said that it is the most important thing to consider when investing in a company. Simply put, it is the ability to raise prices if you want to. That doesn’t mean you should raise prices, simply that you could and enough of your buyers would follow for you to make the price increase stick. Even early-stage B2B SaaS companies should be working to build their pricing power.
One of the most important ways to do this is to understand the role of emotion in your customer’s buying process. Many of us in B2B SaaS tend to focus on and build our messaging around negative emotions. “What is the customer’s pain?” “Are you selling vitamins or aspirin?” The assumption is that pain is the best thing to get people to shift from the status quo. This is an emotional argument, not an economic one. A good SaaS marketing makes an emotional connection.
Slack says, “Be less busy.”
Zendesk: “Simply beautiful.”
B2B marketers know that they need to make an emotional connection first in order to get people to pay attention to their economic arguments. But the emotional hook does more than just get our attention; it also frames how we will respond to pricing.
Positioning Your Solution on the Hierarchy of Business Needs
One frame for this is Maslow’s Hierarchy of Human Needs. In consumer pricing it is well known that the higher you position yourself on this hierarchy the higher the price you can claim. Apple and its “Think Different” campaign is the classic example for technology.
The same buyer psychology works in B2B. When you sell to companies, you should keep in mind they have basic requirements, as well, but around business processes and cash flow. They need to offer a reliable and secure service and build trusted relationships with customers, partners, and in some cases regulators. But pricing power really starts to kick in when you can connect your solution to the company achieving its tactical and strategic goals.
Maslow’s Hierarchy adapted for business needs (tweet this)
Too many B2B SaaS companies get caught up in detailed economic analysis and focus on lower level value propositions. It is critical to understand customer economics (see You Can’t Price Software Without Focus) but that is not enough. You can increase pricing power by repositioning your solution in terms of your customer’s goals. These can be tactical goals — the kinds of things covered in quarterly reports and analyst coverage. But the big win is when you can connect with — and even shape — strategic goals. You find these in the thought pieces by Chairmen and CEOs in the annual reports and public interviews.
Want to leverage the power of emotion in B2B pricing? Try this simple exercise.
- Map your current value propositions to the people you engage in the buying process.
- See what level of need you are engaging using the Maslow hierarchy.
- Map your current value propositions to the hierarchy of corporate needs.
- Where are you positioning your solution?
- Can you reposition your solution higher in the hierarchy by linking to tactical or strategic goals?
- Can you use this new positioning to shift the reference price for your solution?
Photo by: Kenny Louie
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