There are many guides out there that will tell you the definition of pricing strategy, or why a pricing strategy is important (isn’t that obvious?). But right now, we’re going to talk about pricing from a different perspective.
Clozd provides win-loss analysis services and technology mostly to B2B companies. We interview their buyers in won and lost sales opportunities to help them understand the real reasons they are winning and losing.
Over the years we have interviewed thousands of buyers. We’ve noticed several themes continuously come up across all of these interviews and pricing is a major one.
This pricing strategy guide is not going to talk about the differences between value based, penetration, dynamic, or any other type of pricing. Instead, we’d like to share with you our findings on why companies win and lose deals because of pricing.
We’ll specifically talk about six themes where pricing has influenced wins and losses in B2B sales opportunities. They are:
Time and time again buyers will say that a product was just too expensive. This is typically in shorter conversations with the salesperson that lost the deal. We also see this reflected a lot when companies mandate that salespeople put in a win-loss reason in their CRM. They usually do this with a dropdown and one of the most common reasons a salesperson picks is pricing.
When a B2B pricing strategist in a company receives this information, what are they supposed to do with it? Start offering a 50% discount on everything like a department store weekly sale?
The answer, of course, is no.
There is more nuance and depth to the answer, ‘too expensive.’
When our interviewers dive deeper with a buyer on the “too expensive” answer, it really highlights the simple fact that the buyer just didn’t see an ROI to the purchase. They have no perception of value to the solution. Price is relative, and without a perceived value, anything can be labeled as “too expensive”.
We see this play out over and over again with solutions priced significantly higher than the competition still winning because the buyer also perceived the value to be so much higher. Having solid pricing-market fit (we’ll talk about this later) is critical, but it almost doesn’t matter if you do a bad job positioning your solution in a way that a buyer can easily see an ROI in adopting it.
Your solution needs to meet a market want/need. Our data shows that part of your product-market fit is how well your pricing also fits your market's wants/needs. We call this pricing-market fit.
In our experience talking to buyers and gathering win-loss data for household B2B brands, we have learned a lot about pricing-market fit. We most commonly see it working around three variables: the pricing model itself, contract terms, and packaging.
One example we’ve seen in recent years, not from our win-loss data, of a company misaligning with an intended market on their pricing model is Hubspot.
When Hubspot entered the CRM space, they were aimed at small and medium sized businesses. With less expensive pricing, easier to use features, and a leaning towards inbound marketing, Hubspot started to win against companies like Salesforce.
However, a problem arose as soon as Hubspot tried to sell to sales teams and enterprise accounts.
Marketing teams using Hubspot’s inbound methodology were using the Hubspot CRM to gather inbound marketing leads that expressed an interest in the company. The Hubspot CRM was free to store these names but as soon as you wanted to send these leads through a marketing automation campaign, you had to pay for the marketing automation module and pay for every name in your CRM.
This wasn’t a big deal to marketing teams trying to keep a tight control of the quality of leads in their CRM.
The pricing-market fit problem with their pricing model occurred when they would try to sell to outbound sales teams and marketing teams.
Outbound sales teams like uploading large lists of prospects into their CRM and then, by leveraging outbound tools, they try to book meetings with these prospects. With this strategy, many of the names added to the CRM are meaningless. The whole idea comes down to a numbers game—it takes a lot of outbound activity to generate opportunities.
With Salesforce teams using this outbound strategy, they could upload thousands of prospects and track every activity happening with that prospect without paying per contact in the CRM. Hubspot, on the other hand, became cost inefficient to do this if it was also being used by the marketing team.
The marketing team already had contacts in the CRM that they had to pay for because they were using Hubspot for marketing automation. If the sales team came to them and said they wanted to upload a list of 10,000 people into Hubspot to try some cold outreach, they would end up paying an additional cost for all of those new names.
This caused several companies to eventually adopt a different CRM to support the outbound approach.
Hubspot has since updated their pricing model. Now, you can actually designate which contacts in Hubspot should be included in your marketing automation pricing and which contacts are basically just a name in your CRM.
Another element that should be considered in pricing-market fit is if your contract terms fit the market you are trying to sell to.
Are your contract terms too rigid?
Does the contract length fit your buyers expectations?
Dies the invoicing schedule match your buyers’ needs?
Let’s look at an example of how contract terms work in pricing-market fit.
Think about your buyers for a moment. Are they individual buyers, startups, enterprise companies, government agencies, or something else?
Each of these different types of buyers are facing unique challenges. If your primary buyer demographic is made up of small business owners, one problem they constantly face is cash-flow. If you are forcing them into long-term contracts with a large, upfront payment but your competitor is offering shorter-term contracts with flexible invoicing schedules (like monthly or quarterly), your buyer is going to view the competitor’s pricing more favorably.
Instead of forcing buyers to meet the best interests of your company, you could offer incentives when they do (e.g. better pricing for longer contract terms, etc.).
Our win-loss data suggests that companies who don’t carefully consider how they package their products and services, they immediately give that ‘too expensive’ vibe.
We know that your team spent forever on features that you all think are really cool, but your buyers might not share the same enthusiasm. Especially if these features don’t come baked in with that clear ROI we talked about above.
Your solution may be able to solve the buyer’s problem with 70% of the provided features. However, if you still feel it is necessary to demand a higher price for the additional 30% of features the buyer doesn’t need, you’ve instantly made your offering look too expensive, bloated, and maybe even too complicated.
This problem can only become worse if your competition is priced cheaper than you and has feature parity with your 70% feature set. Maybe if you have a small part of your market that does see value in the 30% of features, this seems like a perfect opportunity to have two separate offerings.
As we mentioned at the beginning of this article, many times when pricing is a negative factor in a sales opportunity it really comes down to whether or not the buyer could justify an ROI to the cost. Maybe your pricing-market fit is perfect, but the problem is actually just the way you are talking about pricing.
Many B2B buyers would tell you that buying a B2B solution is time-consuming, complicated, annoying, and frustrating.
Often, the most difficult part of a B2B buyer’s role in the buying process is selling the solution internally to their boss and other stakeholders.
If you don’t empower them to make the business case internally they’ll end up looking like they don’t know what they're talking about, and they are going to have a difficult time getting budget approval for the purchase.
It is critical to your sales win-rate that whenever pricing is presented to a buyer, it is done in a way that they clearly understand.
Even if your primary contact loves your product, they may go with your competitor simply because it was easier for them to get internal buy-in.
Be transparent with your pricing.
Many users claimed that a big pain point was not knowing the cost of the product upfront. Although there are obvious reasons for keeping your pricing a little close to the vest, the argument for putting your pricing on your website or giving it to the buyer upfront is compelling, too.
Being transparent with your pricing and avoiding/thoroughly explaining any hidden or all-encompassing fees can be the one thing that sets you apart in your buyer’s eyes.
One buyer said the company they were evaluating posted the pricing on their website so he could quickly calculate what it’d cost him and was able to get that approved by his manager. When he got the quote back after meeting with the sales rep, it was more than triple the amount he calculated from their website pricing.
There was an administrative fee that they tacked on that he wasn’t aware of. The buyer ended up feeling “baited & switched” because they appeared to have transparent pricing but ended up not being the case.
Clear pricing from the get-go is an instant selling point. Hidden terms and fees can detract from the usefulness of the product because the buyer can get so hung up on the price, and explaining what the “fees” entail can actually help your case.
There are many moments when the presentation of pricing can irk a buyer. One of them we see happen frequently and is a huge misstep happens during the negotiation stage.
Here is the conversation we see too often that kills trust and immediately makes a buyer feel like they are getting a bad deal: A salesperson presents the price as $100,000 a year.
The buyer asks, “Is there any discount available on this price?”
The salesperson says, “Let me go talk with my manager and see.”
They come back within minutes and immediately discount the price.
The seller instantly loses credibility with the buyer when this happens.
Why was the price so high if they were ready to discount so quickly? This mistake can damage rapport and credibility and is easily avoidable.
Lastly, while switching costs aren’t something that are normally looked at in pricing strategies, we want you to be mindful of it. You should have empathy about how switching costs impact your buyer’s decision.
Many times your selling team thinks about pricing in only the costs you present with your solution. However, buyers think about pricing differently. They have to do the entire calculus on additional fees, staffing impacts, and switching costs.
In a space where you are challenging a long-standing, market-dominating vendor, you may not win on just having a better feature set. For example, sometimes complicated solutions become so critical to a business that they become a key part of their operating mode. They might love your product more than the incumbent, but the switching costs are so prohibitive that no matter how much they like your product, they will not switch.
We’ve talked about some of the pitfalls we see companies fall into when pricing is a negative influence on their deal outcomes.
One of the best ways to understand if your pricing strategy is helping your company win, or if it is causing irritation with buyers and lost deals is with post-decision interviews with your buyers.
Asking them how pricing impacted their decision is invaluable data to inform you on any adjustments you may need to make.