The New Rules for Subscription Pricing Innovation
All subscription businesses — whether B2B, B2C, or B2Any — can learn a valuable lesson from SaaS companies around innovation and iteration, and what this means in the context of pricing and packaging.
Best-in-class SaaS companies maintain a healthy pace of continuous product innovation — no longer are they delivering new products or services just once or twice a year. Nor do they require their customers to undertake major upgrade projects to take advantage of their new releases and product innovation. They are good at getting new products out quickly, relying on testing and iteration to refine these products over time.
This shift in speed of innovation has resulted in the need for SaaS businesses to also maintain a continuous and healthy pace of pricing and packaging innovation.
In fact, all subscription companies need to maintain a healthy pace of pricing and packaging innovation. As new products are released, markets change, and/or your customers’ needs and preferences change, you need the ability to respond quickly so that your pricing and packaging reflect these changes.
But in order to innovate and iterate on pricing and packaging, you need to have the necessary systems and processes. And you need some sort of framework to align your organization.
We’ve worked with hundreds of businesses that purchase Zuora because of the sales and marketing freedom that the product provides to roll out and iterate on new pricing models in a rapid fashion, without having to re-code or re-configure back-end billing systems. With this flexibility, subscription businesses can be much more agile when it comes to pricing innovation.
However, these businesses often realize that once they use Zuora to overcome their “systems inertia” to changing pricing and packaging, they also need to overcome the “organizational inertia” of changing pricing and packaging.
Overcoming Organizational Inertia for Pricing and Packaging Innovation
Though we know that pricing and packaging decisions need to be made at a much faster and more frequent pace, it is often not easy to align all the stakeholders in the decision in order to maintain this healthy pace of innovation.
When you don’t have alignment on your primary pricing and packaging goal, this can result in:
- Too many add-ons that aren’t mapped to growth journeys resulting in a confusing laundry list of options for customers to pick from.
- Eroded price-to-value differentiation between the various products and services that you offer.
When your pricing/packaging teams are unable to keep up with the pace of product innovation due to decision bottlenecks or misalignment, it results in some of the pitfalls discussed here.
Use an innovation alignment framework
One suggestion to streamline or accelerate decision making is to utilize an “innovation alignment framework.” Once the product roadmap is available, the teams responsible for pricing and packaging should group roadmap items to benefits that these innovations will deliver.
Each row of this table represents one major benefit that a group of underlying capabilities might deliver. The columns represent the different pricing and packaging goals you might want these benefits to align to.
Keep in mind that these goals are not customer-specific or customer-centric goals. These are goals important to your business.
You then have to force each stakeholder in the pricing and packaging decisions within your company to chose ONE and ONLY ONE primary pricing goal for each new innovation. Identifying this ONE primary pricing goal will help inform and direct your efforts on whether this new innovation should:
- Be an add-on
- Be bundled with existing products
- Have a price at all
- Be given for free to seed the market
Since each row in this table represents a benefit that is delivered to the customer, and each column represents your business goal, this framework helps to create alignment between what customers will value and how your business should price and package these new innovations.
In the Subscription Economy, gone are the days of set-it-and-forget-it pricing. To monetize your services — and optimize revenue from each subscriber — you need to take a different approach to pricing innovation, and to build out a system and framework that can support the necessary pricing and packaging iteration.