SaaS: How to Find the Right Price
As businesses and consumers alike see their purchasing power under pressure, businesses with a subscription-based model need to be ingenious to properly calibrate their prices.
What lessons from the past should be implemented when modifying your price as a software-as-a-service brand? Techloging offers a guide!
Netflix as an example
Netflix is not strictly speaking a SaaS company, and yet its history is not without lessons for software players.
If there’s one company in the world that we know has mastered subscription, it’s Netflix. And yet, in 2011, she made a nearly fatal mistake, splitting her $10 plan into two plans at $8 each, an effective 60% increase in access to the same content.
The reaction was immediate: 800,000 subscribers lost and a plummeting stock price. We can therefore see that a price error can be dangerous, and one would think that it was enough for Netflix to cancel this increase to start again, but the problem was elsewhere.
The subscription is based on a mutual relationship, and Netflix had actually broken the trust of its subscribers by unilaterally deciding to increase its prices in the midst of a recession.
However, Netflix has become the world champion of streaming. To recover, the company had to deliver one of the most important lessons for all subscription companies: how to correct themselves after making a mistake.
Netflix’s lesson: to correct your mistakes, listen to your client!
First, subscribers wanted anytime, anywhere access. Netflix very quickly realized that consumption patterns in general were changing radically and adapted accordingly.
Second, their customers wanted simplicity, so they created a user interface that was seamless, personalized, and nurtured by millions of daily uses.
Finally, Netflix cleverly leveraged its data to understand that their subscribers wanted original creations, and particularly liked David Fincher, Kevin Spacey and Robin Wright. At the same time, a British series was a hit in England, called House of Cards…
Netflix has been able to listen to its customers, identify a major trend, leverage data and restore the relationship of trust, to achieve its current success.
Putting relationship at the heart of the change process
But how do you avoid getting it wrong in the first place? A great example of smart change comes from GitLab, a very popular IT development platform that is growing rapidly.
GitLab was facing a problem: their entry-level product (the Bronze tier), intended for small teams, had ended up attracting more established companies for which this product was unsuitable. Because of this mismatch between the product and the client, GitLab was losing money in customer support and found itself forced to change its offer, in particular by killing its loss leader.
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GitLab implemented the change gradually:
- By offering a transition plan: GitLab customers could not only keep their Bronze subscription until the end of the contract, but also subscribe again for a year, or upgrade to a premium plan with a price reduction.By highlighting their free offer: and for good reason, the majority of the features of the Bronze plan were already free. The free plan converted free customers into paying customers efficiently, while the bronze plan cost more than it brought in.
- By encouraging feedback: On the day of the launch of the new offer, GitLab invited its customers to give their opinion in a special section of their community forum.
- By prioritizing simplicity: GitLab has properly highlighted its three offers so that everyone can quickly decide which formula is right for them, rather than getting lost in superfluous options and features
GitLab has therefore perfectly mastered its change of offer with the above.
The lesson to take away
Whether it’s Netflix or GitLab, the lesson is similar. The flexibility allowed by the subscription is not a guarantee of success. Listening to your customers and nurturing the relationship with them is, on the other hand, an essential ingredient for success – something too many companies, subscription or not, seem to forget.
Source: Forbes France
