AMA: Kajabi VP Product Marketing & Lifecycle, Tamara Grominsky on Pricing and Packaging

Pricing and packaging is such an exciting area of product marketing, I'm thrilled to hear you're going to dig into it! Here are some of my favourite resources: * Price Intelligently/Profitwell blog - https://www.profitwell.com/recur/all/tag/pricing * Handbook on the Psychology of Pricing by Markus Husemann-Kopetzky * Confessions of the Pricing Man by Hermann Simon * Monetizing Innovation by Madhavan Ramanujam

Deeply understand your target customer and their buying preferences. How do they want to purchase from you? Will knowing the price up front help in the buying process? Are you losing out on prospects because you aren't transparent about the price? Start with customer research and let the customer guide you to a solution.

This will vary business by business based on your market position, your target customer profile, your go-to-market motion, and more. But in general, I usually highlight a few areas of concern for folks to be aware of before they jump into a pricing project: 1. Don't do everything alone. Pricing touches almost all parts of the business, and it's important to form a cross-functional stakeholder group to help guide the pricing overhaul. You still need one person to hold accountability, but it's best when you share responsibility. Otherwise you may end up both overwhelemed with work, and with a plan that no one else in the organization is bought into. 2. Don't assume one size fits all. Your customers are diverse, and their pricing needs are diverse too. In order to successfully complete a pricing overhaul, you need to first understand which target customer you're pricing for. Spend time upfront refining your customer segmentation, and then focus all of your pricing research on the customer segments you want to win. 3. Don't forget to test and experiment. Because so much research goes into pricing, it can be easy to forget that pricing is both art and science. Don't assume that just because you have qual and quant insights, you know all the answers. Get your hypotheses out in the market as soon as possible so you can test how customers and the market will respond.

There is no one correct answer to this, unfortunately. There isn't a perfect number of pricing tiers that will unlock growth, but some research has been done that you can use as a starting point. Many people reference the power of three, and the popular good, better, best pricing strategy. This school of thought proposes that having any more than three options overwhelms the buyer and introduces increased cognitive load. While Good, Better, Best is a common package structure, it’s not the only one. Some argue that having more than three package options could lead to higher revenue. A 2019 price anchoring study by Price Intelligently showed that companies with more than 5 plans see 40-50% higher average revenue per customer. At the end of the day, I always suggest that you first focus on identifying the number of customer segments you want to price for. That should help guide the number of tiers you have.

Whenever we launch a new product or feature, I make sure we're aligned on the core business metric we want to drive. Is this a churn reducer? A top of funnel acquisition play? An expansion or ARPU play? This should help to guide how you frame the opportunity. If you're torn between a few potential paths forward, I always suggest a quick back of envelope calculation to help size the opportunities. In this case - if you were to offer it to all customers for free, how much could you improve the activation rate (or time to value rate)? By doing so, how many more customers would you convert or retain? Put a dollar amount to that. Then take the flip side. If you charged for this as an add on, or included is in a higher package, how many customers would purchase? Now you have the increased MRR from that group, as well as the improvement in churn/activation for that (probably) smaller cohort. With both calculations, you can weigh the pros and cons.

There are several different triggers that could spark this converstion - the launch of a new product/feature that is monetizable, competitive movement in the market, the decision to pursue a new adjacent market, an acquisition of a company, major changes in a key business metric, etc. In any way, if you see an opportunity to re-investigate your current pricing and packaging, I'd suggest that you anchor it in one of these changes - this is a great way to frame the opportunity and help other stakeholders get on board. Since pricing touches almost all parts of a business, I usually recommend a fairly diverse stakeholder group including reps from Product, Marketing, Sales, Finance, Customer Success and Operations. Since there are so many stakeholders, I'd also recommend that you be clear on responsibilities and accountabilities up front.

Taking the time to build out a structured plan is an amazing first step to ensure your project is successful - so happy to hear you're thinking about this from the beginning. I like to think about pricing projects in 5 phases: Goal Setting, Research, Strategy Development, Testing, Go-to-Market. First, you want to ensure you start the project by setting a clear objective and aligning on the measures of success with all stakeholders. Once you’ve finalized the goal and KPIs, you’re ready to begin drafting your qualitative and quantitative research plan. Your research plan should outline the different areas of research, as well as the techniques you’d like to use - ie. Van Westendorp, Conjoint, etc. Once you've completed your research, you can bring together all of the insights to help guide your monetization strategy. But, before you jump right into go-to-market, it's important to start testing some of your hypotheses. Even with a research-backed strategy, you'll never know how the market will actually respond. Test in phases and then scale go-to-market from there!