Estd 4.22.2023
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In this chapter we are assuming that the 1st level alignment for a pricing strategy project around goals for the pricing project has already happened.
Segmentation is all about dividing up your potential customer base into smaller, more focused groups that share specific characteristics and needs from your product category. Segmenting well starts with a clear understanding of the dynamics of groupings of customers – what are their needs? what are their common attributes? how do they value products like yours? etc.
Let’s break it down by looking at two common segments in horizontal B2B SaaS companies: mid-market companies and enterprise giants. Both might need technology solutions, but they have very different expectations and requirements.
Mid-market companies are generally the scrappy up-and-comers. They’ve grown beyond the startup phase and are now looking for software that can scale with them without breaking the bank. They need tools that are easy to implement, offer flexibility, and don’t require a ton of internal resources to manage. Price sensitivity is key here, so they’re often looking for a solution that gives them the most bang for their buck. They value simplicity, speed, and ROI, and they’re not looking to spend months or years deploying a new system.
On the flip side, enterprise technology segments are the big players—the tech giants with complex needs. These companies have established processes, huge teams, and a laundry list of requirements. They’re not just looking for software; they need robust, scalable solutions that can integrate with the multiple systems they’re already using. Security, compliance, customization, and top-notch support are non-negotiable for them. They’re willing to invest significant time and money into a solution, but they expect it to be tailored to their unique needs and to deliver high reliability and performance at scale.
Generally, in order to truly get in the shoes of a company in either segment, you will want to create an Ideal Customer Profile. An ICP is a detailed description of a hypothetical company or customer that would get the most value from your product or service and, in turn, provide the most value to your business. It's essentially a blueprint for the type of customer you want to attract and retain.
Here is a simplified example of ICPs for both segments mentioned above:
The problem that very often occurs in a company is ICP Drift and a gradual confusion around “who” the product is being sold to. ICP Drift refers to the gradual misalignment or deviation of a company's Ideal Customer Profile (ICP) from its original definition. This can happen over time as the company evolves and the sales teams begin to focus on different types of customers than in the original plan docs.
Now in this new state of play a pricing problem cannot be resolved without getting a fresh understanding and alignment in ICP definition. Often differing assumptions about ICP will lead to different pricing strategy recommendations inside a company. Many times these hidden assumptions lead to months or even years of wasted efforts (amongst the rotating hire/fire cycle of employees) without agreement on the “who” we are even selling to.
Now, that you are well-versed with your segments, the very next step is to position and package your product in the buyer's mind and eyes. This will be covered here.