The scenario is fairly typical. You launch your SaaS application for $14.99 per month. A few months later, a competitor launches a competing service for $10 per month. How do you respond with a competitive offer without cannibalizing your existing customers?
We asked a number of software executives for their thoughts on the topic and have summarized their responses below:
Paddy Srinivasan, CEO, Opstera (www.opstera.com)
In the above scenario, you are introducing a new tier in the Free->Premium continuum. The inherent risk is that existing customers might want to downgrade to the new level to save albeit with a constrained set of features. While you cannot stop this, one way to have your customers think about this decision is to make the distinction between the SKUs extremely clear in the new tier vs. the premium SKUs. For example, at the low-end customers might be able to only perform 50 transactions a month (or an equivalent measure that makes sense in your business). While this might be okay for someone who is getting on board just to try the service, existing customers must think twice about downgrading for the ever-present fear of "what if I grow?” Usage-based price tiering lets your customers experience the product with little risk then upgrade to customize features to their unique needs.
Dominique Levin, CMO, Totango (www.totango.com)
If you do things right and build a strong relationship with the customer, they won't care about product transitions. As you address your customer’s needs and requirements as they evolve over time, you can often generate more revenues from existing customers (as compared to prospective customers); and, the revenues you generate come at a much lower investment cost (so you enjoy much more profitable revenues). To build a strong relationship, the most important thing you can do is communicate with your customers regularly about the value you are generating on their behalf. This form of communication not only acts as a testament to your company’s and product’s ongoing improvement, it also expresses your dedication to continually deliver value to your customers. The next step is upselling. Upselling works best when you offer additional products that speak to your customer’s needs and usage. You can learn a lot about your clients, based on which product they have purchased and how long they have been paying customers. Rallying in your customers and generating a customer base is more than half the battle. Once they’re in your domain, optimize revenue potential by engaging customers as their relationship with your product builds over time. Start with the basics of value communication and build up your programs to product and usage-based initiatives. Your customers will feel that you’re catering to their needs, and your business will reap the rewards.
Chris Couch, COO, Transverse, LLC. (www.tractbilling.com)
Reducing your price to attract more users but limiting their activities is always an option. But it is important to remember that customers paying $14.99 for unlimited access will have a different value equation then those paying a lower price for limited access. Customers that don’t see value in paying a set amount for unlimited access to a good or service may become interested if offered a chance to pay a nominal price in exchange for options. For those subscribers, the value comes in the flexibility to consume the good or service at will. In a SaaS subscription, for those not willing to pay for a $14.99/month for unlimited access may be willing to pay a $9/month if they can access core functionality but not advanced functionality. To take the scenario one step further, the customer who does not see value in paying $14.99 for unlimited access may become interested when he can pay $1/month for each extra user, extra features or even extra minutes. At $1 extra per use, the customer has a low barrier to trying out the new features, and the business succeeds in making money on features that previously would not be monetized. But the real value for the business is the opportunity to convert the customer to different subscriptions over time, as the subscriber’s situation and interests evolve.
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*Disclosure statement: I am not paid to write this blog. No one gives me money, buys my groceries or mows my lawn because of this blog. However, I do run a marketing business and, sometimes, I will write about companies that I represent (such as Transverse and Opstera mentioned above) because I am enthusiastic about them. I will also write about companies that I do not represent because they are interesting to me. If you want me to write about your company, if I have missed something, if you need additional clarification or if you disagree with my disclosure statement, please let me know (email@example.com).
Ben Bradley writes about the intersection of
technology and business. His primary interests include the impact of
sales and marketing on end-user technology adoption, billing and
business models, social innovation, entrepreneurship, collaboration,
networks and groupware. He is also the founder of Macon Raine, Inc. He
can be reached at firstname.lastname@example.org