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Estd 4.22.2023
Based on our saas pricing book Price to Scale, a sound strategy in a market dominated by a freemium or low-cost competitor is to avoid entering a race to the bottom by creating clear value distinctions through a premium tier. Here’s how you can approach it:
• Direct your efforts toward developing robust, premium features that appeal to the more advanced or specialized users. As discussed in Price to Scale (see pages 137 and 267), many SaaS companies facing intense price competition have successfully segmented their market. They do so by offering a basic, cost-effective plan that meets general needs, while simultaneously enhancing their product with advanced functionalities designed for users with more complex or high-value requirements.
• Instead of reducing prices across the board, focus on differentiating through value. By creating a paid tier with premium features, you effectively target a segment willing to invest in additional functionality, support, or usability. This differentiation allows you to maintain healthy margins and reinforces the perception of quality compared to a freemium competitor.
• Emphasize a clear product development shift where your teams work collaboratively to build enticing upgrades. This often involves continuously refining both your free offering and your premium features, ensuring that while the basics remain competitive, the advanced offerings are compelling enough for users to upgrade.
In summary, by focusing on a well-defined premium tier with superior features, you can compete effectively without undercutting your baseline pricing. This strategy leverages differentiation to capture a market segment that values the additional benefits, ensuring your product remains competitive and profitable even in a price-sensitive environment.