Join host Nitin Kartik as he chats with Product Marketing expert Ginevra Mambrettii about strategic timing, transparent communication, and customer-centric approaches in managing price increases.

Key takeaways

Importance of timing and competitor analysis

Ginevra emphasizes the strategic advantage of waiting for competitors to implement price increases first. This approach allows a company to learn from competitors’ mistakes and gauge market reaction, thereby mitigating potential backlash when they eventually reprice.

Clear and transparent communication

When implementing price increases, clear and transparent communication with customers is crucial. Explaining the reasons behind the price change, who will be affected, and how it aligns with industry-wide changes can make the increase more acceptable to customers.

Customer-centric approach

To minimize customer churn, especially among those most negatively impacted by price increases, offering tailored solutions such as custom pricing can be effective. This approach demonstrates a commitment to customer satisfaction and retention even in challenging situations.

About the guest

Ginevra Mambretti, Fractional PMM and PMA course instructor

Ginevra is a multi-award-winning Senior Product Marketing Manager with extensive experience marketing SaaS products across EMEA, APAC, and North America. Fluent in English, French, Spanish, and Italian, she has successfully led marketing initiatives in diverse sectors including eCommerce, cybersecurity, and fintech, spanning B2C, B2B, and developer-focused products.

A recognized thought leader in her field, Ginevra serves as a speaker and course instructor at Product Marketing Alliance. Her expertise and contributions to the industry were acknowledged when she was named among the top 100 product marketing influencers worldwide in 2022. 

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From positioning and pitching to pricing and personas, we tackle every facet of strategic marketing. Share your wins, workshop ideas, and tap the collective wisdom of our community. 

The conversations flow 24/7, along with a steady stream of templates, playbooks, and lively banter. Consider it your portable conference, minus the price tag.

Stay tuned for more episodes of Product Marketing Maestros: Tales From the Front Lines.

The post Navigating price increases: Lessons from a fintech PMM leader, with Ginevra Mambretti appeared first on ProdSens.live.

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This article is based on Ismail Madni’s brilliant talk at the Product Marketing Summit in Austin. As a PMA member, you can enjoy the complete recording here. For more exclusive content, head over to your membership dashboard. 

More and more AI capabilities are being added to product roadmaps every single day. Even companies that aren’t using true AI are still incorporating increasingly advanced capabilities into their product. 

As product marketers, this gives us a golden opportunity to rethink how we price our offerings and the story behind that pricing – and that’s what I’m excited to talk to you about today.

A brief history of software pricing models

Let’s start by taking a quick look at the history of software pricing models. 

We need to understand not just pricing and packaging, but also the storytelling around it. However, back in the 80s and 90s, there really wasn’t much of a pricing story to be told. It was mostly one-time, large upfront purchases for on-premise software. You’d have some annual maintenance fees too. The story was just “this is the cost versus the value.”

In the late 90s and early 2000s, we saw the rise of cloud products with subscription models like Salesforce – monthly, annual, or multi-year recurring payments. It was cheaper upfront and the products were constantly updated, so there was real value there. But the pricing story didn’t evolve much – it was just “it’s cheaper to buy with a subscription.”

Today, we see a lot of subscription and usage-based pricing models. I’m a big fan of usage-based pricing because it directly ties the cost to the value the customer receives – the actual outcomes you’re providing them. It’s much more of a pay-as-you-go approach. 

There are tons of examples of usage-based pricing in B2B – examples like Zapier (per task/zap), Eventbrite (per event), Snowflake, and AWS (per resource). Their pricing directly ties to the outcomes being delivered. It’s a win-win – vendors have to keep providing value, while customers only pay for what they actually use. 

How to tell a story with usage-based pricing

AI capabilities fit beautifully into the usage-based approach and the stories you can craft around it. As product marketers, we’re storytellers. We tell stories about our products, their amazing outcomes, the problems they solve, and the jobs they help customers get done. 

With AI, we now have an opportunity to tell another chapter in that story through our pricing model and the messaging around it.

The usage metrics you select as pricing inputs can directly shape that narrative. Are you creating new workflows and saving time? Are you making people more efficient? Broadly speaking, AI is going to do one of those things – help users move faster, be more productive, save money, or enable new ways of working. 

Your value drivers dictate the value metrics, which in turn suggest the pricing approach. If your product enables new workflows, you can price based on that workflow enablement. If it helps coding or copywriting happen faster, you can price accordingly – per article or line of code, for instance.

How to craft compelling messaging around your pricing strategy

To see how you can use your pricing model as the foundation of a story that resonates with buyers, let’s look at a couple of real-world examples – one from Intercom and one from GitHub.

The post Messaging your AI pricing model appeared first on ProdSens.live.

Product pricing has been front and centre in mainstream news as of late. What are the most common pitfalls with pricing, and how can product teams get it right? Andrew Skotzko, Product Leadership Coach and Fractional CPO, shares his thoughts. Read more »

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The post The dark art of product pricing: Product leader nuggets appeared first on ProdSens.live.

This article is based on Richard Shotton’s talk at the Product Marketing Summit in London. As a PMA member, you can enjoy the complete recording here. For more exclusive content, head over to your membership dashboard.

Hey there, I’m Richard Shotton and I’ve been immersing myself in the exciting field of behavioral science for the last 15 to 20 years. I’ve even written two books on the topic: The Choice Factory and The Illusion of Choice.

Today, I’m going to talk about the power of behavioral science and how you can apply it to your pricing strategies.

Let’s get into it.

What is behavioral science?

If you’re not familiar with this phrase, don’t worry – it’s nothing too complicated. It’s essentially what we used to call social psychology – the study of how people actually behave, rather than how they claim to behave. 

If you’re new to behavioral science, the best summation probably comes from Susan Fiske, a Princeton psychologist, who describes people as “cognitive misers.” 

Her colleague Daniel Kahneman puts it a bit more gently: 

“Thinking is to humans as swimming is to cats; they can do it, but they’d rather not.“

Neither psychologist is trying to be rude; they’re well aware that people have phenomenal rational and logical capabilities. However, for most of human history, energy has been a scarce resource – and thinking requires a lot of energy.

So, when we make decisions, whether personal, consumer, or professional, we usually don’t think things through in a deliberate, considered way. Instead, because we’re trying to conserve mental effort, we often make fast, reflexive decisions. Psychologists, rather pompously, call these mental shortcuts “heuristics”; you might prefer to think of them as rules of thumb.

As a product marketer, it’s your job to persuade people to change their behaviors, so you need to understand these rules of thumb. People are prone to biases; if you’re trying to persuade someone and you’re aware of their biases, you’re working with human nature rather than against it. 

Behavioral science is essentially a giant catalog of mental biases, with hundreds if not thousands of experiments into their nature and how they can be harnessed.

Of course, I can’t cover thousands of behavioral science experiments in a single article, so today I’m going to focus on one specific area of persuasion: how you can apply these insights to shape perceptions of pricing and value. 

In other words, I’ll aim to answer this key question: how can you make the same product, at the same price, seem like a much better value?

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Using price relativity to shape willingness to pay

One broad theme you’ll notice throughout this article is that people don’t assess value in absolute terms. When considering a product, most people don’t systematically weigh its benefits against its costs – that would be a ludicrously complex calculation! 

Instead, because they’re cognitive misers, people unconsciously replace complex calculus with simpler comparisons. More specifically, when evaluating value, people tend to use a relative framework: they quickly think of a set of comparable products and then compare your offer to that set. 

In other words, if your product is more expensive, it seems like bad value; if it’s cheaper, it seems like good value. This phenomenon is called price relativity.

The idea that perceptions of value are relative should interest all of us. Why? Because it means that if you can shape your customers’ mental comparison set, you can dramatically change their willingness to pay.

Price relativity in action: The Nespresso example

If we look at the commercial landscape, we see many examples of huge brands skillfully applying behavioral science principles to great effect. I’d argue one of the best examples from the past 20 years illustrating the power of shifting comparison sets comes from Nespresso.

Consider Nespresso’s product launch. They didn’t just stuff coffee grounds into two-pound bags and sell them on supermarket shelves next to tins of Folgers. If they had, Nespresso would look astronomically expensive compared to the competition. 

A two-pound bag of Nespresso at current per-ounce prices would cost over $100! Who would pass up a $15 tin of Folgers to grab a $100 bag of espresso? It wouldn’t just seem expensive – it would seem wasteful and even morally questionable. No sane consumer would consider it.

Of course, that’s not what Nespresso did. Instead, they sold coffee in pods, shifting the comparison from bulk coffee brands to a single cup of specialty coffee. As Rory Sutherland has pointed out, this meant that instead of comparing Nespresso to grocery store staples like Folgers, they compared it to coffee chains like Starbucks. 

Suddenly, Nespresso’s $1 pod seemed like amazing value next to the $5 Starbucks charges for a latte. It’s the exact same per-gram price, but by subtly shifting the comparison set, Nespresso massively increased people’s willingness to pay.

This simple insight, creatively applied, has generated billions in revenue for Nespresso. And guess what? You can take similar principles and apply them in your business setting to significant benefit.

Harnessing price relativity in an established industry: The trains example

Of course, Nespresso executed this strategy during a new product launch when no preconceived notion of value existed. It’s easier to shape perceptions from scratch; however, with just a dash of lateral thinking, even the oldest product categories can apply the principle of relative pricing.

Let me give you an example from the world of trains – an industry that’s been around for about 200 years. Back in 2019, Deutsche Bahn, the German national railway, wanted to convince citizens to take vacations domestically rather than flying abroad. To do this, they scraped people’s Facebook and search data to see where they were looking at holiday destinations. 

If someone in Berlin was checking out trips to Colorado, Deutsche Bahn would show alluring photos of a site like Horseshoe Bend on the Colorado River, overlaying the real-time airfare of €1,156. Then, immediately below, they’d display a remarkably similar-looking location in Germany – in this case, the bend of the Mosel River near Bremm – with the real-time train ticket price of €19. 

Now, what would most marketers do to persuade tourists to stay domestic? They’d probably just show pretty pictures of German destinations with the train fares listed. 

That’s logical, but what’s the natural comparison? For most people, it’s likely the cost of a tank of gas for a road trip – and €19 (about $20) doesn’t look like great value versus fueling your car. But by introducing an international flight as the reference point, suddenly €19 looks like a rounding error! 

That’s price relativity in action. When you change the comparison set, you change customers’ willingness to pay. 

The post Hacking human nature: How applying behavioral science can make your product appear better value appeared first on ProdSens.live.

Discounting is a tried and tested tactic used by companies worldwide to drive sales; research has revealed discounting is the top pricing strategy for retailers across all sectors.

While discounting your product can increase your customer base and generate additional income, it can sometimes prove counterproductive.

Although reduced pricing can attract more customers, this strategy can also reduce your profit margins or attract negative personas when it isn’t planned and executed properly. Read on to find out how to discount product prices in the right way.

• 10 discount pricing examples
• What to consider when discounting a product
• How much discount should be given to the customer?
• How to increase your product price

10 discount pricing examples

Buy one, get one free 

Buy one, get one free, or BOGOF, is commonly used to attract customers to try new products. The retailer takes a loss on the second item in hopes the customer will come back to pay full price in the future. This is often seen for new product launches or seasonal items.

Percentage discounts

Percentage discounts allow for flexibility in the size of the discount. For example, a fixed percentage like 25% off seems more attractive than a random dollar discount. Whether targeted for specific items or applied storewide, these discounts add a touch of sophistication to your shopping experience.

Dollar amount discounts 

Dollar amount discounts, on the other hand, work well when the regular prices don’t vary much and are easy for customers to calculate their savings compared to percentages. 

Whether it’s a straightforward $5 off or a “spend $100, get $25 off” deal, these discounts are designed to enhance your shopping satisfaction. Calculating your savings then becomes a breeze, and it subtly encourages larger order sizes.

Bulk discounts 

Encouraging you to buy more, these tiered discounts, such as 10% off for 5-9 items or 15% off for 10-14 items, not only benefit you but also help retailers achieve their sales targets. Bulk discounts are a strategic approach for both parties involved and are often used by warehouse clubs like Costco.

Loyalty discounts 

Loyalty discounts act as a reward for repeat customers and help to build – you guessed it – brand loyalty. Whether through a points system or an automatic discount upon reaching a lifetime spending threshold, these rewards give you more of a compelling reason to stick with a particular retailer over a competitor. 

First-time customer discount 

First-time customer discounts give a strong incentive for new customers to try a product or service for the first time. It encourages new customers to take that initial leap, whether it’s their first online order or booking an appointment. This is a super effective strategy for retailers to expand their customer base.

Bundle pricing

Offering savings on a carefully curated set of products, bundle pricing allows retailers to showcase a diverse range of inventory. As a super simple example, you could consider bundling items like a printer, paper, and ink cartridges for a convenient, seamless, and economical shopping experience.

What is product bundling? Key advantages and strategy

We’d all love to see our revenue stream consistently rise by a pretty penny (or two), however, putting money in the bank is undoubtedly the hardest part of running a business. A product bundling strategy is amongst the many methods companies adopt to keep their revenue streams running.

Product Marketing AllianceLawrence Chapman

Daily deals 

You can infuse a sense of urgency into your shopping routine with daily deals. Designed to create a sense of scarcity, these rotating offers entice you to check in regularly for diverse discounts. It’s a win-win situation for both clearing excess inventory and ensuring customers enjoy a dynamic shopping experience.

Flash sales 

Flash sales are dramatic savings for very short periods, sometimes just hours. This helps to drive excitement and impulse buying of discounted items. Having small inventory and time limitations pressures customers to buy quickly as it instills that sense of FOMO (fear of missing out).

Student discounts 

Student discounts provide an accessible price point for those navigating a budget-conscious lifestyle. Serving as a long-term investment, retailers offer these discounts to build loyalty early on, recognizing the potential for extended customer relationships. Customers can simply verify eligibility with a student ID and unlock exclusive savings.

What to consider when discounting a product

Before applying any discount to your pricing strategy, be sure to plan meticulously and consider the following:

Define your objectives

Never apply a discount without establishing why you’ve decided to apply a discount in the first place.

Perhaps you’re hoping the tactic will attract new customers? Maybe you want to appease your existing customers? Are you dropping prices to reactivate churned customers?

It’s critical to identify your reason for applying a discount because there are different types of discounts applicable for different objectives.For example, if you’re trying to reach churned customers, a personal campaign is the best way to achieve your aims and win them back around.

Segment your personas and offers

When you’re discounting products, you can increase your conversion rate by introducing segmented offers based on your customers’ preferences.Create customer profiles detailing their buying habits based on previous purchases and use this information to offer discounts that are relevant to each customer.

In theory, this may seem like a daunting task. However, a customer management system (CMS) will equip you with all the information you need to see what every single customer is buying and how much money they spend, allowing you to offer an appropriate discount.

Get your timing right

When you’re considering applying a price discount, time is of the essence.If you send out a deal at a time when your customer doesn’t need it, this will have a significant impact on your conversion rate.

Be sure to use the data at your disposal to identify when sales are at their peak.If your sales trends indicate your customer base is converting at the start of the month, it wouldn’t make sense to introduce a discount at the end of the month when they’ve spent their monthly paycheck.Seasonal factors can have a substantial impact on when a company can successfully introduce price discounts.

For example, every year, the English Premier League soccer season runs from August to May, and clubs release new soccer jerseys in the build-up to the first week of the campaign. With the latest designs being released in June/July, the soon-to-be outdated jerseys are reduced by more than 50% as fans start to switch their attention to the updated designs.

Consider your margins

You need to make sure you don’t compromise too much by applying a discount that’ll mean you lose money. It’s important to set an acceptable margin range for your products and any discounts applied.

Conditional promotions are a great way to offer discounts whilst protecting your margins. These promotions differ from blanket promotions in that they entice customers with a discount on the condition that they fulfill certain criteria. For example, spend X and get X% off.

Alternatively, a condition could be to limit an offer exclusively to VIP members, or customers who’ve signed up for a loyalty scheme.

Identify upselling and cross-selling opportunities

When you discount a product, it can increase the number of visits to your website. Take advantage of this opportunity by upselling or cross-selling to generate as much income as possible from each prospective customer.eCommerce giant, Amazon, uses these techniques all the time.

For example, let’s say you want to buy the Joker DVD – you head to Amazon, search for the product, and go to add it to your basket.Before you know it, you’ve been presented with a suggested bundle and a $6 bargain has turned into a $24 purchase. You’ve splurged $18 more than you’d initially anticipated – just because Amazon has told you it’s an ideal combo – impulse buying at its finest.

For a full overview of the product bundling pricing strategy, visit our complete guide here.

Prioritize your new products

It’s important for your pricing discounts not to work to the detriment of your new products.As a preventative measure, list the items that have been discounted after your new products. This will ensure customers’ eyes remain fixed on your brand-new, full-price products before they reach your reduced items.

Price skimming: everything you need to know

In this article, we focus on the price skimming strategy and help you decide whether this is an appropriate strategy for your company to implement.

Product Marketing AllianceCharley Gale

How much discount should be given to the customer?

Determining the appropriate discount for your customers can depend on various factors and considerations. Here are some common approaches and factors to consider when deciding on the discount:

Cost-based pricing

Understanding the costs associated with producing or acquiring a product or service is fundamental. This approach involves factoring in not only the direct costs but also indirect costs such as overhead, marketing, and distribution expenses. By setting a price that covers these costs and allows for a reasonable profit margin, businesses can ensure financial sustainability.

Competitive pricing

Analyzing the pricing strategies of competitors is crucial for positioning your offering in the market. By offering discounts that align with or surpass competitor pricing, businesses can attract customers and remain competitive. Striking a balance between competitive pricing and maintaining profitability is key.

Market research

Conducting thorough market research helps businesses understand customer expectations and willingness to pay. This insight allows for adjustments in discounting strategies based on perceived value and market demand. Adapting discounts to align with consumer preferences can contribute to increased sales and market share.

Customer segmentation

Segmenting customers based on behavior, loyalty, or purchase volume enables businesses to offer personalized discounts. Recognizing and rewarding loyal customers with exclusive discounts can foster stronger relationships and enhance customer retention.

Promotional discounts

Implementing time-limited promotional discounts can create a sense of urgency and drive sales during specific periods. Aligning discounts with holidays, seasons, or special events capitalizes on consumer behavior and boosts overall promotional effectiveness.

Volume discounts

Providing discounts based on the quantity of products or services purchased encourages customers to place larger orders. Tiered discount structures can incentivize bulk purchases, contributing to increased revenue while still providing value to customers.

Customer Relationship Management (CRM)

Leveraging data from CRM systems allows businesses to identify and categorize customers based on their purchasing history and behavior. Offering exclusive discounts or rewards to loyal customers demonstrates appreciation and reinforces positive customer relationships.

Dynamic pricing

Implementing dynamic pricing involves adjusting prices and discounts in real-time based on market conditions, demand fluctuations, and other variables. This agile approach ensures that businesses can optimize revenue by responding to dynamic market dynamics effectively.

Profitability analysis

Regularly evaluating the impact of discounts on overall profitability is crucial. Businesses should ensure that their discounting strategies contribute positively to the bottom line, striking a balance between attracting customers and maintaining financial sustainability.

Negotiation

In B2B scenarios, being open to negotiation is essential. Understanding the specific needs and circumstances of each customer allows for tailored discounting structures, fostering mutually beneficial relationships.

Customer satisfaction

Assessing the impact of discounts on customer satisfaction is integral to maintaining a positive brand image. Striking the right balance between offering value through discounts and ensuring quality customer experiences contributes to long-term customer loyalty and positive word-of-mouth marketing.

How to price a product (with selling price formula)

Overpricing your product means you run the risk of pricing yourself out of the market. You need to introduce a price point that’ll secure your place in the market, satisfy your customer, and give your business scope to thrive and develop. Here’s how to calculate the perfect product selling price.

Product Marketing AllianceLawrence Chapman

How to increase your product price

There are also instances when you may need to increase your prices, and this can prove a challenge in itself.

Phill Agnew, Senior Product Marketing Manager at Hotjar outlined two tactics you can use:

The first tactic I want to focus on which will help you increase your price without losing customers is something called hyperbolic discounting.

Hyperbolic discounting

It’s a fancy word for something we all know. It’s the feeling that when you have a mountain of work piling up, and you know you need to get it done within the next couple of days but you just can’t find the motivation to do it.

You put it off and instead watch Netflix and convince yourself that tomorrow you’ll get all that work done. In that scenario, you have fallen victim to something called hyperbolic discounting.

“Hyperbolic discounting refers to the tendency for people to increasingly choose smaller, immediate rewards over larger later rewards”.

The problem here? Instant gratification.

Let’s pretend you’re selling a high-value Mercedes Benz, you could show the full cost for $40,000 today, or you could show the cost broken down perhaps by using a bit of this hyperbolic discounting insight.

You could say it’s broken down to $32 per week, or $4.75 a day over the course of two years, but which would look most attractive to the user?

One study actually analyzed this to reveal conclusively which was seen as the most attractive price. The researchers presented one of three numbers at random to over 500 participants and the results revealed the shorter the time frame, the smaller the cost, the more appealing the deal.

In fact, when the prices were shown as daily figures, they were five times more likely to be rated as a great deal than when they were shown annually.For SaaS marketers and for product marketers, this is a really interesting insight.

Where possible in the future, we should pursue the extra bill, the cost of payment off into the future, we shouldn’t encourage consumers to spend 40 grand now – instead, we should get them to make smaller commitments, like $4 a day.

Now that’s one way you can reframe your products to push for a higher price. It works because you have to remove that immediate pain of payment. But it’s not the only way you can reframe your price.

The decoy effect

I’ll finish by highlighting one of the tactics that a lot of SaaS marketers use, but not one that the majority of us particularly understand – the decoy effect.Let me explain the decoy effect by bringing in the famous study which was cited by Dan Ariely in his book, Predictably Irrational.

So Dan, being a professor at Princeton University, spotted the decoy effect, not in the cinema, but while flicking through The Economist.

He found that The Economist had these three pricing options that they were publishing. They had that online-only subscription at the top ($59), the print-only subscription ($125), and then the print and web subscription for $125.

That’s quite weird, right? With this third option, you get both the print and online versions, but it’s the same price as the print option by itself.

Why would anyone buy the print-only option? After all, it’s the same price as the print and web option.

Essentially, Dan predicted that The Economist was using this strange pricing strategy to create a decoy and encourage more consumers to spend $125, rather than the $59 for the online-only subscription.

To test this hypothesis, Dan tested it out on his students. He showed one set of his students the actual pricing with the decoy included, and the other set of students an edited version with the decoy – the print-only option – removed.

He wanted to see if removing the decoy price changed what people thought about the product and changed what people wanted to buy. Turns out removing that decoy had a huge effect.

When students were shown the decoy effect option, which was the one that The Economist had on their site, they would, on average pick the most expensive print and web subscription, it looks like such a good deal, because it was the same price as the print subscription and yet it had the web subscription included as well.

Yet, when Dan showed his students the edited version, without the print subscription included, suddenly students were far more likely to pick the online subscription only. The majority of students only spent $59.That’s really interesting. Just the way that The Economist has priced their products, the way they frame their pricing, the way they built their options, dramatically changes what consumers want.

Whether you’re putting a strategy in place, discounting a product, or increasing costs, pricing plays a prevalent role in the role of any product marketer – it’s critical to understand the ins and outs of the area.

Product Marketing Core, PMA’s official certification course, includes a module focusing on the fundamentals of pricing.

It most certainly does – thanks, Phill! Enroll now and get certified at your own pace.

The post Discount pricing: how to increase profits with discounts appeared first on ProdSens.live.

The post The Journey of Bootstrapping to $50M ARR and then Raising a $180 Million Series A appeared first on ProdSens.live.

This article is based on a presentation given by Josh Bean at the Product Marketing Summit in Chicago. Catch up on this presentation, and others, using our OnDemand service. For more exclusive content, visit your membership dashboard.

Hey there! My name’s Josh and I work for Zendesk, where I recently took on the task of helping to drive one of marketing’s most forgotten pillars: pricing. 

Think about the four Ps of marketing – product, promotion, place, and pricing; now tell me, how do you spend your days? I’m guessing you obsess over crafting the perfect messaging and campaign creative. Meanwhile, pricing may feel scary, almost mystical. However, there’s tons of low-hanging pricing fruit that companies overlook.

Raising prices can seem terrifying, but B2C companies do it all the time – just look at Netflix and Spotify. You can even see the point on the graph below – around 2017 – someone joined Netflix with a mandate to increase their rates. You’ve likely grumbled and swallowed a few such price hikes yourself. 

Why strategic price increases are crucial

Now, nobody loves price increases, but they’re essential to ensure companies’ long-term success. Here’s why:

1. Ongoing product innovation: Customers expect constant innovation, and you need to fund this expectation.
2. Keep pace with economic pressure: As inflation rises, if you’re not keeping pace, you’re losing money.
3. Funding talent: Customers want to work with the best, but you need to be able to afford the right talent.

At Zendesk about a year ago, we were facing many of these pressures. Our pricing had remained almost flat since the company was founded back in 2010. We realized it was time to raise our prices.

Of course, our last attempt at a price increase flopped spectacularly. We doubled prices overnight and made headlines for all the wrong reasons. Sure, we only increased from $3 to $6 per month, but our timing and tactics backfired. The intense public backlash left us shell-shocked, and we honored those legacy price points for another decade

But in 2021, the stars aligned. There were a lot of signals encouraging us to think the time might be right for another try:

• We hadn’t made any material price increases in over seven years –  despite massive product innovation.
• Our 1,000+ product and engineering pros ship game-changing features daily. Yet our pricing stayed stagnant apart from minor tweaks like add-on charges.
• We boast immense perceived value compared to our competitors.
• Despite economic uncertainty, research shows that SaaS spending is rising steadily.
• For tools like Zendesk, functionality and support outweigh the price for most buyers.

So, we developed a new price increase strategy, with me leading the charge from the product marketing side. Was I super excited? No. Was it scary? Absolutely, but the opportunities outweighed the risks.

Today, I’ll share our strategic playbook so you can evaluate price increases for your business. This is a huge untapped growth lever that more companies should pull. Let’s dive in!

Step one: Market analysis and benchmarking

First, it’s crucial to build a solid market analysis and understand your benchmarks. To do this, there are six key sources you’ll want to lean on:

1. Market interviews: Talking to your customers is key. The right customers will tell you if they feel they’re getting good value. They’ll also help you understand price sensitivity and where your product has stickiness. 
2. Data analysis: Look at all the data you can get your hands on. Which tiers of your products are being discounted? How often is your product actually being sold at the list price? Are people switching plans? How many customers do you have on your premium plan versus your basic plan?
3. Competitive analysis: Who’s trying to undercut you on price with similar capabilities? Who’s positioning themselves as premium products? Where do you fit in this spectrum? 
4. Market surveys: This is a great way to gather data on price elasticity. You might not have a market research department, but it’s worth investing in this kind of third-party research. If a price increase could mean thousands or millions in revenue, you want to spend the money to back your decisions with concrete evidence.
5. Expert input: Think about consulting experts in the field or hiring a pricing consultant if needed. 
6. Internal interviews: Your customer-facing teams have insights into where your pricing is spot-on, where you’re underpriced, or perhaps overpriced. You need to calibrate based on this feedback.

Testing price elasticity 

When surveying the market and your existing customers, it’s vital to ask questions like, “If we were to increase prices by X, what would you do?” 

Let’s take Netflix as an example. If Netflix increased their prices by $100 a month, I wouldn’t stick around to watch the next season of Love is Blind. But what if the increase was smaller, say $10 a month? Well, I might consider it – the last season was pretty good and I want to see what will happen in the next one. 

Everyone has a threshold where the price increase aligns with the value they perceive in your product. By surveying customers and prospects, you can gauge where that threshold is and how they’ll react to a price hike. 

For instance, I’ve noticed that most companies see a willingness in customers to downgrade their plans, change their behavior, or even churn entirely at around about the 15% mark. Now, that’s not to say you should raise prices by 14.9% – a 12% increase, like YouTube’s recent one, seems to be more palatable.

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We all know that APIs power our applications. As API products have transformed into powerful tools for enhancing software, organizations have begun turning to their current API products to generate substantial revenue. 

But simply putting your APIs out there isn’t enough to guarantee revenue. Building a sustainable API monetization strategy takes work. You’ll need a deep understanding of how your target customers actually perceive and value your API offerings.

In this article, we’ll walk through the essential steps for building a winning API monetization plan. Here’s a taste of what we’ll cover:

• Conducting detailed market research to pinpoint your audience
• Analyzing competitors to find strategic advantages
• Optimizing pricing models based on real user data
• Crafting a strategy tailored to your customers’ needs

With the right strategic approach, you can unlock new revenue streams, enable innovative use cases, and set your API business up for long-term success. So let’s get started!

Market research 

An effective API monetization plan begins with a solid foundation of market research. In this crucial phase, companies must first delve into understanding their target market before understanding their individual users and cohorts. 

This process entails a meticulous process of identifying potential customer segments, pinpointing the specific demographics and industries that would benefit from your APIs, and anticipating user needs and preferences. Some important questions to consider: 

• Demographics
  • What industries or job roles are your users typically associated with?
  • What size of organizations could benefit from your product (e.g., startups, SMEs, enterprises)?
• Technological proficiency
  • How tech-savvy are your users? Are they developers, technical decision-makers, or non-technical users?
  • What programming languages or platforms are they familiar with?
• Use cases
  • What are the primary use cases for your API within an average workflow or project?
  • Are there any secondary or unexpected use cases that might arise for more complex or unique users?
• Challenges and pain points
  • What are the common challenges or pain points your users face?
  • How does your product alleviate these pain points?
• Budget and decision-making authority
  • Who holds the budget for API-related expenses within potential customer organizations?
  • Are they the ultimate decision-makers or influencers in the adoption of APIs? (Often, a “developer-first” approach means more than focusing exclusively on decision-makers.)

As well as tuning into your users, it’s vital to keep a finger on the pulse of the market. Constant observation of market trends can enable an organization to stay attuned to emerging technologies and consumer behaviors or needs. 

To stay competitive in the ever-evolving world of tech, teams must keep their features and products relevant to current market demands. Important in any industry, analyzing market competition is equally imperative. This involves identifying your business and product’s competitors. You’ll need to consider the following questions:

• What kind of APIs do they offer? 
• What pricing models do they use? 
• What do their customer engagement strategies look like? 
• What gaps do they have in their features or tools?

By pinpointing key differences and opportunities that can be leveraged, an API-first company can more easily carve out a competitive edge. 

Competitor analysis

A keen understanding of your competitors is invaluable when building your own monetization plan. By thoroughly examining your rivals’ API monetization strategies, you can make smarter decisions for your business based on your competitors’ mistakes or gaps. 

First and foremost, get a baseline understanding of who directly competes with your API products via similar features or applications. Scrutinize their pricing models and tiers to discern how they structure their costs and cater to various customer segments and budgets. Compare the features and functionality they offer through their APIs at varying price points. 

Often, the perceived value of an API product is directly proportional to the kinds of features offered. By understanding which features are offered at which paid tiers, you can understand the value your competitors provide to their users.

Beyond this, a SWOT assessment of competitor strengths and weaknesses is crucial. Identifying what your competitors excel at will give you insight into their target users. Equally important is recognizing the areas where they fall short – these could be great places to focus your internal engineering efforts. 

This analysis isn’t just about sizing up your competition; it’s about gleaning insights to refine your own API monetization strategy and carve out a competitive advantage in the marketplace.

• Strengths: Capabilities that give you a competitive benefit.
• Weaknesses: Internal shortcomings of an organization or product.
• Opportunity: Outside variables that can offer growth.
• Threats: External conditions that can threaten growth.

Pricing optimization 

Pricing API products effectively is perhaps one of the most important endeavors in your monetization strategy. After all, once the intrigue of your landing pages wears off, your pricing scheme is where your users will focus their attention.

Your API pricing directly impacts your company’s profitability and market competitiveness, so it’s important to take a data-driven approach that’s based on your actual API users rather than hypothetical ones. 

If your product hasn’t completed its GTM strategy, working with hypothetical users is fine, with the understanding that your paying customer data may not support your initial suspicions.

The first step on your journey of pricing optimization is selecting a pricing model. So, consider whether a freemium, pay-as-you-go, or enterprise-focused approach aligns best with your target audience and business goals. To do this, you’ll need to combine your market research with your competitor analysis. 

While it’s crucial to stay competitive, setting the right price point is about finding the delicate equilibrium between sustainable, regular profitability and enticing new customers. For API products, value-based pricing takes center stage as it aligns your pricing strategy with the perceived value your API offers to users. 

Dynamic pricing strategies can empower your company to adapt swiftly to market fluctuations by adjusting prices based on demand and actual usage patterns, too. By remaining data driven, your organization will more reliably craft a pricing strategy that can be a potent catalyst for your company’s growth.

Building customer-centric monetization 

Your API’s success hinges on its reception among customers, which is why a customer-centric approach to monetization is key. Aligning your monetization strategy closely with your customer needs will enable better alignment and a more enticing pitch. 

Your API data is the key to a true, nuanced understanding of your diverse customer base that will allow you to tailor your pricing plans correctly. By understanding how your users interact with your APIs, you can better understand what metrics matter to your business, allowing you to more accurately monetize your API products. 

This process may be the most surprising part of your pricing decision-making process. The features and metrics that you think matter for your API product and to your users may be completely different from the reality of their usage. That’s why inspecting your API user behavior is critical to having a lasting monetization framework that truly meets the needs of not only your customers but your business. 

Talking with your customers about what price points are realistic for them and knowing what your competitors charge can also help you to shape your pricing scheme. 

Flexibility in pricing options is crucial too. This will allow you to accommodate the fiscal obligations and limitations of each group, from startups to enterprises. Should things shift for your product or business, clear communication regarding pricing changes is crucial to maintain trust.

Monitoring and iterating 

Launching your API product and monetization strategy is just the beginning, not the end goal. To achieve long-term success, you need to consistently monitor performance and iterate based on insights.

A rigorous evaluation of your monetization strategy provides an invaluable understanding of your product’s market fit. Regularly assessing your current market landscape and potential future markets keeps you attuned to competition. This allows you to plan for new feature development and expanded use cases.

After launch, one of the most valuable assets in the iterative process is customer feedback. Listening to your paying customers, understanding their evolving needs, and making adjustments accordingly can be a huge point of differentiation for your APIs. 

Actively understanding your user demands and expectations can shape your product roadmap. And with different user segments integrating your APIs, those market requests will shift and change. 

Once your customer base is wide enough, A/B testing your pricing plans and experimentation can come into play. Allowing your API company to test different pricing strategies can help you accelerate deals for customers with more complex use cases. 

The features that matter most at your product’s inception may not be the features that stand the test of time, either. In this case, being able to modify feature or bundle pricing swiftly in order to adapt to market conditions will be what drives optimal revenue. 

It’s important for stakeholders to understand that the API product journey is ongoing; like most technologies, the product will change over its lifecycle. A proactive approach to refinement is key to ensuring your APIs remain profitable in the long run.

Conclusion 

The importance of a well-planned API monetization strategy cannot be overstated for an API-first business of any size. Your monetization plan serves as a compass, guiding you through the complexities of market research, competitor analysis, and pricing optimization. 

But it doesn’t end there; product monetization is a journey of adaptation and improvement. Success lies in the ability to embrace change, listen to your customers, and pivot when necessary. 

By taking a proactive, forward-thinking approach to monetization, your API company will excel at innovation, profitability, customer satisfaction, and so much more.

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