It’s important to price for customers, not just the product itself, as humans ascribe value.
Dan shares his career journey, starting as a software engineer and transitioning into product management and eventually pricing consultancy. He emphasizes the critical role of pricing as a strategic lever in successful B2B SaaS go-to-market strategies, drawing on his extensive experience helping companies overcome common pricing challenges.
Dan provides valuable insights for B2B SaaS leaders looking to leverage pricing as a key component of their go-to-market efforts.
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Pricing as a Strategic Lever in B2B SaaS Go-to-Market: Insights from Pricing Consultant Dan Balcauski
Let’s get this rolling. So the first question, which I ask my guests, or my guests, is, how do you view and define go to market?
It’s an interesting question. Honestly, I don’t have a whole lot of use for the term, because go to market tends to be very vague and broad. When I hear people talk about it refers to sales and marketing functions in general, the way I sort of wrap my head around it, I think a lot more about like we have these roads here in Texas, your listeners who may have never visited the area, but we’ve got FM, 2222 and RM, 2342 so FM stands for Farm to Market, and RM stands for ranch to market. So these are the roads that the ranchers and farmers use to bring their products to the city to sell. So to me, that’s kind of where my head goes whenever I hear the term go to market. Like, what are the actual pathways and mechanisms that your product from creation, from the ranch or the farm into your customer’s hands?
I love it. I mean FM and RM. And you give us a little primer. So for all of us tech sense, who are not familiar with this road naming, terminology. It’s a fun thing, and I like the way you used it. Dan, it’s a pathway. I mean, farmers, and ranchers, have a quote, unquote products, and B to B. SaaS companies, they have their products now figuring out their pathway to get to the market. And that’s go to market. I love that. That’s a good take, interesting take, for sure, yeah, but clearly, I mean, there’s so many levers, so many variations, so many challenges when it comes to taking a product from an idea or a concept to the market. I mean, there are aspects around who is this product for. What kind of problems is this product solving, and what is it not that’s more of the external view, the competition view of the market dynamics, and so on?
And then there’s an internal arg related, right? Right? And there’s also the alignment, which you did allude to briefly earlier, which is between product and marketing and sales. And if it’s a SaaS kind of business, you’re talking about customer success as well, typically. So your thoughts, having worked with organizations of different scales and in different industries.
I’m sorry, there was a long Prelude, but I missed the question in there. What is the question about? Like, where do people struggle with alignment?
Yeah, so from your vantage point, having worked in different industries and with different customers’ products, what are the little nuggets that you caught to the different things that I talked about, like the external aspects of go to market, and then the internal aspects of go to market. Any thoughts?
Well, you know, I mean, there’s, I have a lot of thoughts. I’m not sure exactly where you were. You were hoping to go with that, but in many ways, there are often as many internal problems as there are external problems in these companies, right? And so, you know, often, you know, one way to kind of just at a very high level describe what I do is like, Well, have you ever seen what’s on a SaaS pricing page? We’ve got to get to that answer, right? That would be the most succinct way to describe what I do, right? And so you think about, okay, well, that’s communicating a lot of things, right? And so a customer sees that and what do they understand? And what does that mean for them?
Getting to that right? It’s because the problem tends to be that everyone maybe has a view at the executive table of what that should look like, except the Venn diagram of all their views do not overlap at all. So getting that internal alignment tends to be the real beauty challenge that I think a lot of people under-emphasize, or maybe it goes it comes as a surprise. So hopefully, you know this conversation could clear that up a little bit.
Yeah, no, absolutely. So let’s take a bigger picture. Let’s just zoom out a little bit, and if you can share with our listeners your career journey, like day one of your go-to-market journey, and the trajectories and paths that you have taken and what led you to what you’re doing today if you can share that.
Yeah. So I’ve spent my entire career to this point in the software world. I started more on the value creation side than the value capture side. So I started as an engineer, building products in and into engineering management, into product management. Ultimately, when I was a coder, I made the realization that the computer didn’t care how angry I got at it, it still wouldn’t run my code. And so I realized it probably was not the end result for B I became much more fascinated by how we created value for our customers and how that turned into dollars and cents for the business.
And so ultimately pursued my MBA, and I spent a good chunk of my career on the product management side, increasing levels of seniority there. And, you know, I was very lucky when I was doing my MBA to be at a place where I found this out much later. But a lot of business schools don’t even have courses on pricing. Mine did. So I took, I took a lot of them there, not thinking that I’d end up having career pricing, just because I thought it was interesting, and then got thrown into the real world during my internship. I had an internship for a very successful Silicon Valley startup during my MBA program, and it was, it was like a blended product marketing, product management role, and one of the problems on the CEO’s desk was whether should do a freemium approach for their product and reselling sort of consumer apps through this sort of channel?
And so, among several things, I worked on that summer. So I got my thrown in the deep end there. And then, you know, anyone who spend any time and either the product marketing side or product management side knows that, you know, sort of Batman and Robin. I’ll let you choose which is which, but they’re tied at the hip very close. And so while the organizations I wasn’t I was in the product management didn’t explicitly own pricing. We were a critical stakeholder. But what I found is a lot of my product marketing counterparts would be like, I’m really good at, like, doing content and messaging and positioning work. I don’t know if you have a business degree. Can you help out with this? So, you know, I made mistakes along the way but got pulled into those conversations. And, you know, over time, I finally took the leap and decided to get off of my own. Been running my consultancy project, really, for the last six years now, which is a little bit mind-boggling to say. Interesting.
Yeah, interested my journey is somewhat similar, at least in the early stages, where I started off as a software developer, and I love the way you framed it, which is the compiler didn’t really like the way you coded, and that’s a signal you Okay, something is off, and maybe you need to change paths. And so, yeah, so similar path where I started off as a software developer, and then went and did my MBA, and came back to Bay Area and did the different roles, product management, product marketing, the exact ones that you have been alluding to. And so for me, I was where, since I had a very quantitative, analytical background and a mindset, I was also gravitating more and more towards the product marketing side of things versus the product management side of things. This is where I started seeing that interesting friction, where I am better at Product Marketing compared to product management, but I don’t have any say when it comes to pricing, it typically goes to product folks. That’s what I’ve seen. So do you see that? I mean, that’s is that? How do you see it as well Dan?
Well, I think one of the difficulties of running my current business is that there is not a consistent owner of pricing across B2B software companies. Yeah. So, you know, in as much as we like to talk about customer personas, etc, it makes it very difficult for me to create that because it’s like. Oh, the CRO owns it in this company. The CMO owns it in this company. The Chief Product Officer owns it in this company, and the head of the VP of Product Marketing owns it in this other company. Usually kind of the split I see, and it’s all about evenly split between those groups, I would make the argument that I think product marketing should own it. The product is not a bad place to own it. And just simply, the reason why is because I view pricing as a function of positioning, and usually product marketing is at least the keeper of positioning, if not the outright owner. They’re usually at a strategic level in the business. They’re keeping an eye on the competition. They’re very keyed into what the key messages are that are resonating with customers. And so it’s a natural place for it to fall from a strategic mindset. I generally disagree with having someone like Sales own it. You do not want to have, say, Dracula in charge of the blood bank. The incentives are not aligned in that case. No disrespect to my friends in sales, they have a very difficult job. But you also want to make sure that you’re balancing the short and long-term interests of the business as a whole in that strategic pricing function. But the product is really well suited to own it. The problem with the product is usually, I mean, they’ve got a million other things on their plate, and so they just don’t have the time to dedicate to give it sort of the rigorous treatment that it probably should in most cases. That’s probably the biggest flaw of having it in the product organization.
Yeah, fair enough. And looking at your LinkedIn profile, yeah. So after your MBA, you did, or during your MBA, you did your summer internship, and that’s where you found your calling towards pricing looks like. And then you went to solar events, did the product management, and grew up the ladder. So if you can share your experience and stories from SolarWinds.
Yeah, I mean, there’s a lot of experience there. So, you know, one of the things that was interesting about SolarWinds is it was, you know, it’s a software business. First of all, when everyone hears the term, they immediately think it is like, Oh, do you guys do renewable energy or some sort? No, no, it’s a software business.
The company, it’s funny because it’s now just, actually, within the last week, changed hands again to another private equity firm. It IPOs, it goes private, and IPOs goes private, and it just went through another transaction. However, the company itself operates very much like a private equity firm. It looks like a software business, but while I was there, we were acquiring three to five companies a year and tucking them into the broader portfolio.
And so what would happen is we would buy a whole company, slot it into our go-to-market model, and most of that team would sail off into the sunset with their giant bags of cash. And then, you know, as a product leader, you know, at any one time, I was managing between two and four products simultaneously, that all had been separate companies. So it was a very interesting experience to get a lot of reps of seeing what early stage companies, you know, the good and the bad around product management, around product marketing, because you inherit a lot of those decisions, and then have to, you know, make them work in The new system. And so very excellent experience. You know, it was kind of a rocket ship when I was there, but, but, yeah, many of those times where, you know, I was helping to plan the Hey, what is the, what is the feature roadmap?
How are we going to sell this thing, etc? But then, you know, having getting pulled in on these pricing conversations, because there’s, you know, Product Marketing counterparts, very smart, but kind of to that to that point before, right? It’s not that, again, who should own it, product management, product marketing, sales, like very few people, if you go through a product management training, either through pragmatic or any number of places, very rarely have a pricing component, right?
You go through a product management thing, and they teach you, alright, here’s what Agile is. Here’s how to write JIRA tickets. Here’s how to do some customer discovery and product marketing. You know, very rarely are they getting actual, real explicit training and pricing. So I think it’s kind of, you know, it doesn’t say anything about the people. I think it says about pricing as a function. It’s still relatively nascent for most folks. So, yeah, there’s a ton of stories I could go into, like, while I was there, not sure where you want
Yeah, I’m really curious, like, at what point in time, or was that like a phase that actually called you out or pulled you into the pricing aspect?
Yeah, let me well, you know, I had a bunch of different sort of sporadic experiences along, you know, both the journey, sort of when I was in my internship, as well as, you know, solar winds and beyond. So. So after spending years as a product leader in SaaS, I took a year and a half sabbatical to go travel the world and amazing reset. But as I was traveling, I kept on asking myself, what’s next? I thought I’d start a product company, but couldn’t lay an idea. I truly believed in but I didn’t believe in myself, so I started looking at what others were doing in the consulting space. That’s when I noticed something. I started seeing a growing trend of fractional CFOs, CMOs, and even chief legal fractional components. So, no one was talking about a fractional Chief Product Officer. So I thought, either this is a brilliant opportunity or a terrible idea. It turned out to be a terrible idea because I quickly ran into a fundamental problem.
So, like, product is the crown jewel of a tech business. All right, so think of it. You know, product management, Microsoft was the first people to have, I think the product manager. I think they call them program owner titles at first, where they brought it over, but they borrowed the concept from the CPG companies like Procter and Gamble, and you’re the leader who had brand managers,
Right.
Well, the brand is the core asset of a CPG company. The tech and product are the core assets of a technology company. And so it’s not like finance or marketing, where a lot of early technical teams view, you know, maybe those functions, as you know, purely operational plug-in roles. So CEOs aren’t generally looking for consultants or advisors to own their product strategy. If they do think they have product strategy issues, they’re looking to fire their current CPO and hire their full-time replacement to solve it. So, you know. So I was, I was out there with this positioning, you know. And I think, you know, like anything else, it’s very difficult to sort of understand what real market demand looks like until you’re sort of out there doing it. And you know, I was taking on different consulting projects, and your thing kept coming up, which was pricing.
And you know, even I did this kind of intermediate pivot where I was kind of focused more specifically on retention, but then I saw a lot of poor pricing and packaging were at the root of a lot of customer churn issues. And something else, I started getting inbound interest, asking people, asking if I could help them with pricing. You know, even though I wasn’t sort of explicitly, sort of pushing that and, you know, realized that a van was there, and I realized, you know, the market wasn’t looking for this fractional CPO. They were actively seeking help with their pricing and decided to make the pivot. And so, you know, just because something makes sense to you, I think the lesson here is, you know, it doesn’t mean there’s demand for it, you know. But you know, people don’t wake up thinking, I need someone to help me with my product strategy, but their CEOs do wake up thinking we’re leaving a lot of money on the table with our pricing. And I learned that, you know, pricing is a problem. Customers are willing to bring in outside expertise to solve so that’s how I ended up leaning into the pricing.
Yeah, thank you for sharing that. I mean, I was not actually planning to cover this, but I think you added a lot of value. And the reason why I want to emphasize this to our listeners, especially is a lot of times, especially folks coming from the product world, they always think when they hear the word or term product market fit, it’s typically in the concept of like a SaaS product and a market fit. But in your case, what you shared, and this goes to any other services and even fractional folks or solopreneurs, even if there is no software product component to what they’re looking to offer.
At the end of the day, they still have to figure out, quote, unquote, the product piece as service packaged as a product, right? And this is where you had to go through the different iterations to figure out. You enter the original thesis and positioning of a fractional Chief Product Officer, which was your quote, unquote product. I mean service as a product or product as a service, right? But that was not the case, and you had to go through those same iterations that any startup is more familiar with. I mean for folks, typically, when they think about startup founders, they think about like software or software products, but it’s the same thing, right? Even for fractional and services, people to figure out their product market fit, they had to go through the same iterations.
Yeah. Service market fit, right? It would be the same plugin thing. Yeah, you’ve, you’ve got to find a pain point that people are, you know, looking to actively bring in folks to help solve and, you know, I there’s definitely, I could add layers to that story. I think one of the things that you know, maybe is counterintuitive, but if there’s, there are other folks who are, who are trying to go down this, like this was an interesting tweak that I had to use because I’d spent a bunch of time in product roles doing customer discovery right. And so one of the one of the things that you do in those types of conversations is really trying to understand, hey, what are the what are the top pain points those people are trying to deal with in their current roles?
Yeah, um. So the early mistake I made when I was, you know, trying to do that as it applied to that business was, although I might be properly identifying the top issues that that senior executive is, Chief Product Officer, Chief Customer Officer, whatever it might be is, is dealing with that doesn’t necessarily mean that they want to bring in someone from the outside to solve it.
So this was a big problem with looking at something like customer retention, because, you know, maybe the Head of Customer Success, or chief customer officer actually owns that, but that’s, that’s also why they’re there. So, you know, it’s, it is one of these nuances, right? I mean, and you could hopefully that’s valuable, as folks sort of think about, like, Okay, well, people keep telling me as a pain point, but they’re not spending money on it, or they’re not hiring my, you know, a big fan of jobs to be done. I use it a lot, right? So you’re hiring a person or hiring a product, yeah, you know, it’s like, okay, why are they not hiring my product to do this job for them? It’s like, oh, because this is something that they don’t want to be. They don’t. They’ve been hired to do that themselves, right? So, so, you know, a lot of lessons learned there. And again, I don’t say to folks that it’s impossible to go out there and do fractional, cheap product officer, just that I was not smart enough to figure out the way to make that compelling.
Well said, Yeah, well, said, and then you transitioned and went on your own path, and you created product tranquility. That’s the name of your company. So if you can share like, who are your ICPs and what is the recurring theme or pain point, why people keep coming back to you and your services?
Yeah, so we work with, I would say, primarily, B to B. Scale up, B to B. SaaS companies scale up in like the 20 to 50 million ARR range, typically for CEOs, founders, and their executive teams. These companies are past the kind of startup phase, but they’ve really sort of got some amount of repeatable model. The products hit a certain level of maturity where they are starting to deal with issues, like they’re maybe going after new customer segments that they weren’t before, or their product has gotten to a level of complexity where it needs to be divided up into multiple different kinds of offers or tiers, right? Maybe they’ve just been sort of adding one size fits, and they keep on adding and adding, and they’ve got a, you know, a big, you know, thing that does a lot, but it’s very difficult to explain, or, you know, maybe certain segments of their customers often don’t value and so you end up having to do unnatural things with discounting in order to fit things into deals, etc, because you don’t, you don’t have the right fit for different kind of customers that you’re now covering.
Also, at this point, you may become a Multi-Product, either organically or inorganically. And so ultimately, what folks see is that there’s a lot of these pricing and packaging issues ultimately are negatively affecting ARR and net revenue retention, especially. And so, you know, help them get clarity on who their customers are. Do a lot of work around your segmentation, and how they communicate their value. Do you know what alternative understanding, what alternatives customers are concerned about? Alternatives customers are considering, and how do you know the structure, pricing, and packaging?
Understood. So let’s make it even more concrete. So and so for with each of my guests, I asked them to share a success story and a failure story in the go-to-market space. And this actually makes it even more concrete for the listeners in terms of the nuances, the challenges, and how people overcame in their expert area. So if you can share a success story and a failure story, and then talk about your pricing approaches in that context, that’ll be great, Dan.
Yeah, so I’ll actually give you a two-for-one because it’s a failure, but also a success. I generally believe, right? If I look at a tree, I don’t criticize the tree because of all the directions it didn’t grow. I only look at the tree in its hole. So we are we’re always finding a bunch of things that don’t work in order to find ways that do so. I say one of the most common mistakes I see a lot of SaaS companies make is treating pricing as an afterthought, something to figure out, like right before launch, rather than an integral part of their product planning process. So I work with a company who has built a new product. Like many companies, pricing wasn’t a priority until they were kind of deep in the launch process, and so six months before launch, the head of product needs to put together an executive update deck. They get to the pricing slide and think, Well, we charge X for our current product, so we.
Put 2x the on the new one, so no research, just a number on the slide. Yeah. So fast forward four months. Everyone’s been seeing this 2x number in their weekly exec updates. Now they’re two months from launch, and someone asked, like, Hey, we’re launching soon. Like, how confident are we in this pricing? And the Team suddenly realized, well, not very. They had just thrown a number on his slide, like, six months earlier. No real research behind it. So that’s what they end up calling me. And so there’s like, here’s where this gets interesting, like, so we go, we do the market research and find out that the market is actually willing to pay 4x, like, double what they planned. Oh, great. Great news. Yeah, right, but not, not for me.
So what shocked me was the internal reaction. So despite 2x being, you know, completely arbitrary, the executive team had become emotionally anchored to it. They were, like, uncomfortable with the idea of charging, you know, 4x more than you know they’re or actually double more than their customers would have been, right? And so it’s a perfect example I see all the time where, you know, we think business decisions are purely rational, but you know, humans have interesting relationships with money. So that’s when I realized something important. So you know, pricing anchoring isn’t just a customer issue. It happens internally too. So even though, you know, the original price point had no basis in research, you know, it had been repeated in internal meetings for six months, you know, everyone had unconsciously latched onto it as reality. So I presented a much higher point that was supported by market data. Instead of seeing it as an opportunity, the first instinct was skepticism, Oh, it’s too big of a jump.
You know, our customers don’t pay this much and, and what you’ll find is, like, in those situations, like, you’ll just, you’ll attack the research, like, what? Okay, well, now everyone becomes, like, a pricing methodology expert, of like, well, yes, dig it. Yeah, exactly right. And you’re like, you’re like, wait. Like, what do we like, we’re arguing against pure arbitrariness, like how we actually would have done the research. And I was like, well, that methodology is flawed when, yeah, the problem is, is, like, you’re the original thing was just pulled out of a hat. So, so, but somehow you can’t question that part. So, so pure anchoring bias at play? You know, just like, I’m sure everyone should ask your parents. I am sure they tell you exactly how much a gallon of gasoline was when they started driving, right? And that’s the price it should be, right? You know, the gas today is so expensive. When I got my first car, it was only 49 cents a gallon, right? And so, you know, I guess what, you know, I learned a bunch of that experience. You know, the first is that your pricing is just about data. It’s a lot about psychology.
And, you know, if you don’t prepare, you know, not only consumer psychology, which I think it’s a lot of the attention in, you know, the, you know, there’s, there’s plenty of stuff around, like, Why do you have all these anchor prices, etc, get the $2,000 bottle of champagne on the price list, right, but, but you know, you also have that internally in the stake stakeholder. And if you don’t prepare stakeholders well for unexpected results, they’ll reject them. Attack the methodology, attack the messenger. So now, when I work at companies, you know, I make sure to ask them upfront. You know, it’s like, hey, like, if we go do this, if we come back showing customers will pay 3x or 4x more, what would you do or asking them, like, hey, like, where do you think the reasonable range will be?
As you’ll learn a lot about where folks’ heads are at right up front, that’ll help you prevent some of, those surprises, and that conversation before the research starts is crucial. And I think you know, ultimately, you know that’s sort of within that you know, particular domain of, you know, anchoring, within the building. But I think that you know, the real lesson here for folks as well is that pricing is not something you figure out two months before a launch, right? It’s part of the product development process itself. And so if you wait until launch the test pricing, you run the risk of this, you know, these internal assumptions becoming, you know, gelling like concrete before anyone has done any actual work. And that can be as difficult as anything else, right? There’s those, those biases and those anchors are really quite powerful.
Great start.
Yeah, in fact, couple of thoughts, I’ll let you drink a sip of water, but you shed a lot of nuggets over there along the way, Dan, and a couple of thoughts come to my mind. Is so similar to when I was in my role as a product marketer. I typically played the role of taking on the ownership for beta program definition as well as recruiting, and I’m talking about a version one product, so at least in that environment, I could get the buy-in and. Part of the executors, the product leaders, and the marketing leaders. Product marketing has to be involved from the concept stage, especially when it comes to positioning and messaging. That was relatively easy.
But then I also took the extra step of figuring out, okay, we are looking to launch a product, but how do we know how much your customers are willing to pay for that? And that’s where I also did pricing validation and pricing experimentation during and with the beta customers doing the beta program. So that’s something that I did. And going back to your point, I’m completely on board, 100% with you that folks should be thinking about pricing from day one when the product idea and a concept are being really thought about and people are going to invest in building a product not one or two months before a launch. That’s super.
Yeah, yeah.
And so, president, why do you think pricing is overlooked? I mean, at least people are getting around and pulling in forks for the positioning and messaging piece is what I’m seeing. But the pricing piece is still a great area.
It’s a great question. I have hypotheses. So you know, on the P and L, you’re going to have all your expenses of the business, yeah, the, you know, CTO is going to get the bill from AWS, you know, how much your engineering salaries cost, right? You know, but that revenue number at the top, you know, it. Uh, you know, it’s price times quantity. Everyone just sort of, I think their eyes glaze over. They don’t think about they think it’s just that prices as a constant. For the most part, there is a lot of focus on acquisition. So changing the, you know, p times q, there’s a lot of focus on the Q, Yeah, gotta get more leads.
Gotta gotta write more people in the funnel. Yeah. And you know, why is that? I think you know, one is pointing back to what I was talking about before. A lot of folks kind of view pricing as black magic, Voodoo. And so if you know, I don’t know it’s sort of working, and I don’t know how to make it any better, and I don’t think anybody else does either. So if it ain’t, you know, don’t, don’t touch it, right? I don’t even know if it’s broken, so I’m just gonna leave it. I’m gonna leave it alone. And so they don’t really, you know, when you look at that P and L, right, you don’t see that your opportunity cost is a line item, like, well, you know, if you were priced correctly, right, instead of your revenue being x, it could have been 10x. Doesn’t show up on the P and L. And I would hesitate if any accountant actually put that on the P and L.
I don’t think that they’re necessarily in the best position to make that forecast, either. And you know, but I would say, you know, the misconception there is, there is a lot more science than it is a black box. There’s definitely some art to it. As any marketer knows, humans are squishy, right? We have psychological things. We respond to certain words in certain ways, right? And you know your colors are gonna drive different you know, amount of conversion, call to action clicks, right? But you know, we know that there’s no reason why the green button versus the orange button, why the green should win, but for some reason it does.
And so, yes, there is, there is an, you know, an art to it as well. But there’s a lot of science, and I think just folks have not been, you know, as educated on the science, and also, right? It’s this, it’s this hidden opportunity cost. So it’s just kind of out of sight, out of mind. And then, you know, if you don’t have a lot of folks who have done it before, or, you know, they’re not getting pushed to really look at it, then it can be, you know, it can be a blind spot.
Yeah. And it’s interesting, right? I mean, people experience a product and a price variation depending on so many factors. So taking an example that each and every one of us can relate to, it takes a cup of coffee, and the same cup of coffee in a 711 has one price point. The same cup of coffee in a cinema hall will have a different price point. The same cup of coffee at events or even in the airport will have a completely different price, the same product, and it all boils down to how much that customer is willing to pay in that scenario.
Exactly. Value and willingness to pay are relative and contextual. They are not an absolute. Is not like Planck’s constant out in the universe, where we could just scientifically measure it. It is a it is a measure of desire, right? And that desire is framed by, you know, my needs at the time and the other alternatives I have available to me.
Yeah, completely. And I would imagine those are the things that you would do in your research, part of your customer research, as to come up with here is a price point, and this is what is backed, does the data that backs that recommendation? Is that a fair statement, Dan?
Yes, correct. And so, you know, there’s, there’s a lot of different, you know, methodologies we could talk through in terms of, you know, ways that you get pricing data and ways that we validate that, et cetera. One of the things that, whatever sort of methods you use, one of the things we were just hinting at, is that value is relative to the there’s there’s no external arbiter of value. Value isn’t valued like beauty is in the eye of the beholder. And so, you know, the first mistake that we make in the idea of pricing our product is pricing our product versus pricing our customers the product. The product is just a thing. It’s just, it’s inert, it’s bits, right? It has no, it has no value. Human, the humans ascribe the value.
Maybe someday our AI overlords will ascribe the value, but for the purposes now, like we humans ascribe the value, yeah. And so in order to do that, we want to better understand our customers. And so when we look at, you know, whatever methodology you choose to defend, western, a conjoint, or any number of other ways you may think about framing pricing questions, one of the insights that we are most valuable coming out of there is, what are the dimensions that discriminate customers that value this a lot versus those that don’t value it?
Uh, you know, or value a little or not at all.
Yeah!
Right, because those are oftentimes just as important because we want to always spend time, you know, anyone who’s done marketing for any amount of time, all leads are not created equal. Some people have high urgency. Some people have no urgency. And like the sales guys, they love it when you give them a high-urgency customer, they hate it when you give them a no-urgency customer, right? So it’s better for the business. It’s better for everyone. If we target our entire go-to-market lever at the people who most need our product. And so even if around the edges we say, well, okay, we can’t get nine digits of precision of how much this person would pay for this product, but you know what, we could see giant bands between groups, and that’s going to affect which markets we go after first, where we spend our marketing dollars, the positioning, you know that we have, we’ve we get only so many messages we could put on the homepage. Yes, right? The ones that we’re going to put are the ones that want to be increased, are willing to pay more, and also the ones that resonate with the people who say they value this the most. And so that pricing data can be useful throughout the entire go-to-market funnel.
Absolutely. And there’s also, as you’re starting out, that specific story with the customer and a client of yours. I mean, I was thinking, and these thought processes came to my mind, right?
So if you have a price point for your existing product and you want to launch a new product, typically they go by, okay, 2x that’s fine, and that’s because the sales guys are comfortable selling at a 2x value, and even for the maybe it’s a product, and even the marketing folks and the finance folks, but then imagine when you propose it’s not 2x but 4x. There is a reconditioning of the sales process and how you position that product, all of those things now will have to change, because, again, going back to the same cup of coffee and different price points, it boils down to how you’re positioning the environment and what you’re creating.
Well, we just went through this, so folks, give me a more concrete example of this, one of the big news stories in my pricing world, and I think for most of the people who are in technology, it was recently Open AI released their ChatGPT Pro tier. Yeah, so their plus tier was what they had before. It was $20 per user per month, and then all of a sudden, they launched this $200 per user per month, and it made headlines. Made headlines for a lot of different reasons. One is that Sam Altman said he just picked it out of a hat. This is also the man who is fired by his board for not being consistently candid with them. So I don’t know whether I completely trust that that was exactly how they got to that number. They have enough money to hire some consultants, so maybe they got some external advice, or he maybe just pulled it out of the hat.
But okay, you have, this was the exact same situation you have as the situation I described, where you had a new tier with a new value proposition. And what did opening I do? It’s 10x it’s not 4x it’s not 2x it’s 10x what it is. And you know what? People are paying for it.
Yes, and they see a lot of value, yeah.
And people are paying for it, right? And so it’s, it’s an interesting, you know, example, I think everyone can see where it’s like, okay, you know, because, again, right? There’s a lot of emotion. No matter how you grew up, rich or poor, everyone has interesting relationships with money. We as product leaders or product marketers. We’re immersed in our product every day. We know what the roadmap is. We know all the features it doesn’t have yet. We know all the bugs have been reported by customers. So we know all we know where all the bodies are buried in the architecture and how it won’t scale. And so we look at this thing and we’re like, I can’t charge customers for this, right, right?
But that’s, that’s the wrong view. It’s not about you, it’s about your customer, your customers desperate for a solution, and whatever they’re they’re willing to take on, Oh, that. Oh my god, this solves this problem. Because my alternative, instead of paying, you know, open AI, whoever $200 per month is to go, you know, hire a consulting agency who’s going to charge me whatever, $500 an hour to write this research, run this research report. This is an incredible value. I’m excited to pay for this. I’m so excited. I’m going on Twitter telling all my friends how much I’m paying them because it’s such an amazing deal. So I think, you know, we need to understand that that, again, going back to this pricing, anchoring emotional bias is like we have this sense that, oh my god, people are just going to think our customers are going to get with the pitchforks. And look, that happens. We could talk about examples like, you know, Reddit with their API charging, or there was unity with their gaming platform provider, right? They do.
And, some of these pricing changes end up on the front page. The New York Times, and there are lessons to be learned there, and they make very they made some very bad mistakes, but it is possible to create tiers that are significantly different than what you’re currently charging.
Absolutely no.