7 Deadly Sins of Pricing: Differentiation Sins
The 7 deadly sins of pricing that hurt your company’s growth and erode margins can be viewed through three lenses: Differentiation Sins; Valuation Sins; and Presentation Sins. In this first of three parts, we discuss the Differentiation Sins. Differentiation Sins are committed by not recognizing or addressing customer differences.
One “Simple” Pricing Sin
Are you familiar with companies that use one “simple” pricing as a badge of honor? One simple pricing is a surefire way to minimize your growth. Customers are inherently different. They recognize that, know that they want different levels of value and are willing to pay different prices based on the levels they want. Your decision to offer one simple pricing means you’ve opted to ignore those differences at your own peril.
A company in the highly competitive small business CRM market, offered one simple pricing for quite some time and saw that as a differentiation. After a while, they realized one simple pricing had a negative impact and offered three pricing options. By offering more features, this company added 2 higher-priced tiers to existing and future customers. Based on their pricing, if 10% of their existing customers upgraded, their growth rate would be over 10 times higher.
Non-Segmented Pricing Sin
In the one simple pricing example, the CRM company, like many companies, started with only one price. Then, fortunately, they offered three options. That’s great. Now, is there an opportunity for that company to further refine pricing? Let’s assume 90% of their customers have sales teams of 10 or less salespeople. Of the other 10% of their customers, there are some customers with 2 or 3 times as many salespeople and twice as high salesperson turnover.
Could the company offer a win/win pricing for companies that have 20 or 30 salespeople? Maybe, flat pricing for up to 25 or 50 salespeople? Also, as the company transitioned from one simple price to three options, could they have grandfathered existing customers while increasing pricing on the base tier for new customers? Either approach could have added to the company’s growth.
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