Pricing & Positioning

Early Survey Results Show the Most Common Pricing Responses to COVID-19

April 21, 2020

COVID-19 has disrupted many businesses. A few have benefited (not always the ones we expected) and many are hurting, but for almost all of us the underlying dynamics and value propositions have shifted.

At Ibbaka, we have two surveys open that are exploring this. We won’t close them until the end of April, but we wanted to share some initial results.

Before reading on, please take this survey if you haven’t already: What pricing actions are you taking in response to the COVID-19 crisis?

If you want to reflect more deeply on how market dynamics and value propositions are changing, please take this survey: What scenarios are you planning for? Building a pricing action portfolio.

What we’re seeing so far

The most common pricing action companies are taking is to offer temporary relief on payment terms. About half of respondents, evenly distributed across size or industry, are doing this.

I discussed this on a call with a client last week: One person said “finance never lets us do that.” The other person on the call countered, “Our customers are going to delay payments whether we like it or not. They aren’t getting paid.”

The other frequent actions have been to…

  • Offer additional services: About one-third — mostly medium to large SaaS companies (many more companies are considering this)
  • Offer additional functionality: About 30% — all SaaS companies
  • Offer a temporary price cut: About 30% — more likely to be selling goods or professional services

Once the economy begins to recover (it will recover, right), companies are considering…

  • Using new pricing models: About 45%
  • Providing buying incentives: About 40%

I was surprised by the number of companies planning to use new pricing models. 10% of companies changing their pricing models would be a bit of a revolution. I’m curious as to why companies are planning to change pricing models during the recovery and how extensive these changes may be. I plan to reach out to as many people as possible to explore this directly.

72% of respondents said that their customers were suffering significant to moderate revenue reductions. It will be interesting to compare these to the GDP numbers when they come out. I suspect that things are not quite as bleak as people think, and that the deeper issue is uncertainty. We do not know what is going to happen.

My own company is building out cashflow to take us to the end of December on the assumption that we have no new sales. I don’t actually think we will have no new sales—we had a relatively good week last week, but the pipeline velocity has slowed (deals are moving through the pipeline more slowly) and it seems to be less predictable.

One of the longer responses to the question “What advice can you share with your peers on managing the COVID-19 crisis?” was also one of the best:

  1. Don’t lock in long-term contracts to customers with low prices
  2. Consider adding a low priced, competitive offering so you won’t lose customers to low price competitors, rather than just lowering prices on high value products and services
  3. It’s difficult to raise prices as the economy improves. Do not decrease prices across the board—be selective with the prices you do reduce in order to speed recovery on the other side of this crisis.

What should you do?

HubSpot has one of the best responses to COVID-19. See “How HubSpot is Responding to COVID-19 and its Economic Impact.” Disclosure: Ibbaka is a HubSpot customer and will benefit from some of these actions.

The first thing to note is the holistic approach. HubSpot speaks to what it is doing for its customers, partners, employees and its communities on the same page. The latter is worth noting. Our data is showing that community value drivers are becoming more important in our value-based market segmentations (see customer value and pricing scenarios).

Focusing in on the pricing actions, HubSpot did three key things:

  1. They reduced prices for small businesses (note that this is targeted on one group and not a broad brush approach). A planned price increase has been paused. This offer is for 12 months—long enough to hook customers and reduce churn.
  2. They relaxed usage limits. HubSpot’s pricing model uses the number of emails sent as a fence (a way of guiding buyers into the best tier or package). It frames this in terms of helping “businesses keep in regular contact with their customers and communities.” This picks up on economic (one can calculate the economic value of an email sent through HubSpot), emotional (stay in touch with your customers) and community value drivers. Note that this is a short-term, 90-day measure.
  3. They’re offering free tools to all users. “To help businesses adapt quickly, we’re making our paid Meetings functionality, Quotes, E-Sign, and 1:1 Video tools available for free for 90 days from activation.” Again, note the 90-day boundary.

HubSpot has done a great job of building a community around content marketing and a partner ecosystem. One of the most impressive parts of HubSpot’s COVID-19 response is its support for its partner network. Many companies are struggling with cash flow, and anything that can inject cash into the economy is critical at this point. Here’s what HubSpot is doing:

“To help ease some of the financial pressure facing HubSpot’s solutions partners, we’re offering a six-month advance on commissions from HubSpot to all Platinum, Diamond, and Elite Solutions Partners. We’re also expediting Q1 commissions for all solutions partners.”

This is generous—even courageous. I’m sure the companies that benefit, which are often small 1–5 person marketing consultancies, will remember this and will be loyal to HubSpot once the economy recovers.

There are some lessons here for all of us:

  • Increase the economic, emotional and community value you provide
  • Build usage and loyalty now that you can use as a base for growth in the future
  • Make clear that there are time boundaries to offers made during a crisis

Be safe. Care for your families and communities. Reach out to help who you can.

Read more from Steven Forth

Are You Reacting or Responding to Your Customers’ Needs During the COVID-19 Crisis? There’s a Difference.

Co-Founder<br>Ibbaka

Steven is responsible for Ibbaka’s strategic direction and key relationships. He is an expert in marketing strategy (segmentation, targeting,revenue models, pricing) human & organizational performance, learning and knowledge management. Named one of the top 10 pricing authorities in the world by OpenView, Steven has helped companies from Fortune 500 to startups drive returns and increase profits. <a href="https://www.ibbaka.com/">Ibbaka.com</a>