Estd 4.22.2023
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This case study is written in the 1st person voice of Ajit Ghuman, based on his experiences at a former employer.
I was hired as the Director/Head of Product Marketing at Narvar in 2019, with a distinct focus on pricing as a core activity that I would be spending time on. Little did I know that one thing would lead to another, and I would eventually refocus my career on this topic, write a book, and, with you reading this sentence, also publish a v2 of the book on pricing and establish a pricing consulting and education business.
One of the key problems I discovered as soon as I joined Narvar was dissatisfaction and discord amongst members of the sales and marketing teams.
A prior pricing model implemented by a former short-tenured Chief Revenue Officer had failed – ASPs across tiers were dropping, many tiers were not being selected at all, and very high-end tiers were being severely discounted. The company's sellers mainly had been with the company for a long time and had a very distinct motion they were used to selling with. This new model just did not work for them – it created cookie-cutter tiers where the prospect could not expand their use of the product without, in many cases, a significant upgrade into the next tier.
Often, this meant that what would otherwise have been a $3-5k add-on would have become a 50-60% increase in overall subscription pricing; this was obviously a non-starter. An effective model meant that some sellers would completely skirt this model and just keep selling in an ad-hoc way, and other sellers would try to stick to the model and get short-shafted in the pricing they were able to extract from prospects.
The root cause of this situation was that the company was growing fast. It felt like it needed to move closer to high-velocity sales with more standardized pricing and packaging. This made sense because ad-hoc packaging can impose complete chaos into your product roadmap, riddling it with technical debt. It also made sense because sales productivity matters once a company is able to "cross the chasm," if you will.
At the time, Narvar's leading product, Track, had become the de facto standard for shipment tracking landing pages and notifications if you ordered from any top retailer. It was indeed time to scale. Unfortunately, the execution of pricing standardization that was needed, was too fast and sliced/diced the product in ways that were counter to how prospects bought.
Add to it the fact that the CRO who implemented the pricing left in a few months without anyone being able to iterate on the model with her teams' feedback. There is no one to blame; it is just what happens in a high-growth company. These are good problems to have.
Let us understand this problem from a neutral stance. What would happen if you implemented SMB-esque packaging/tiers created for high-velocity sales to a sales team used to selling with more of an enterprise motion in a close-to-bespoke fashion?
I am generalizing this example with a fictional B2B product in the image below to highlight the issue. There are 4 tiers aligned with different market segments.
Sidenote: I have heard PLG product managers sometimes give me this same logic: "We must move people to upgrade." The thing is, you can't change their needs or willingness to pay for your product; anything "forced" will only backfire. You can only create the tiers that allow for a natural and gradual growth in their business.
1. The biggest pathway to a solution at Narvar was not rocket science. It was just about listening and synthesizing all perspectives.
1.1. Why were sellers dissatisfied? Why specifically did the new packaging/tiers not work for them?
1.2. What was the SVP Sales' perception?
1.3. What was the CEO's perception/desire/motivation?
I said it was "just about listening," but perhaps I said it too easily. This is the hardest part of any project – be it pricing, product management, engineering, or what you have to do- and it is listening and aligning perspectives. In this case, alignment was hard won because a failed experiment entrenches everyone in their views.
All negotiations have to be done back door, helping everyone compromise their ego-stance to what they actually need, without enduring a loss in self-image. It takes more than a few years to understand these games of navigating between truth and ego, and it really has nothing to do with pricing or strategy.
2. For me, sitting down with sellers who took the time to patiently explain how they would create a package for a specific customer was the most helpful. In some cases, I would open up Salesforce and look at older closed won and closed lost opportunities – I would make the rep remember what had happened and why he/she decided to create a certain quote/offer. This was the most instructive in where the gaps were in the pricing model.
After having enough of these conversations, I was able to tweak the currently in place pricing model/tiers to be flexible enough for customers within a certain segment to be fully satisfied while, at the same time, being standardized enough to allow for high sales velocity without sellers going off the reservation and selling roadmap items or singular features.
3. Compared to most pricing projects, the problem here lied mainly in the packaging decisions, not the inherent strategy and not in the pricing metric selection, which I did not revisit, at least in the initial project revamp. But we found an interest dynamic regarding price points in the entry level plans. Some of these were already seeing negative discount rates. Which means that sales reps were selling the packages at higher than the established list price even after the prior pricing revamp, now this was purely a sales incentive problem.
Even though the strategy dictated that we try to maximize market share and keep enough entry-level offerings, sellers still wanted to make their number at the end of the day. And they were able to sell the product for more than the list, which helped them make their number. This was an isolated problem, so it wasn't touched in the initial revamp. Instead, it highlights real-world issues like operational systems and sales compensation that can make or break your pricing strategies.