Pricing tactics to try in times of economic uncertaintyBy: Kate Hopkins | March 18, 2020
Note: This post was published as we observed COVID-19 was creating uncertainty in sales forecasts and renewal cycles causing companies to focus on revenue retention from existing customers and strategies for maintaining pipeline velocity.
In such bizarre times, a pricing promotion is probably far from the minds of most software leaders, but strategic pricing could be your ticket to keeping customers during turbulent times. And, if you’re fortuitously positioned, a well-executed promotion could help your company accelerate on the other side of the current crisis.
Defensive strategies to stave off churn
Who should consider defensive pricing?
- If you don’t have annual or multi-year contracts
- If you sell to SMBs or micro-businesses
- If you sell into a disproportionately impacted industry (e.g. software for corporate events)
- If you sell into businesses that are very consumer-facing (e.g. software for restaurant)
Offer to lever-down pricing – tools like Slack and Expensify have long had pricing models that feature only charging for active users; if a user doesn’t actually use the product in a given month, they won’t be factored into the plan fee. Even if you don’t want to permanently adopt that type of usage-based model, you can use the same logic to offer a short-term discount that won’t permanently erode your ASP. For instance, if you sell field service software, and your customers are really struggling as average appointments per week decline, you can respond to customers who express a need to cancel by offering to decrease your price in line with appointments until things start to rebound.
Offer a fee holiday – if adjusting your pricing would be impossible, or if the problem has more to do with difficult approvals in a distracted organization, you can consider offering a time-limited fee holiday during which a strategically important customer could use your product for free. Be sure to clearly specify the length and terms, and use cautiously to avoid setting an unsustainable precedent.
Offer a “pause” option – rather than making customers choose between continuing to pay for a product they’re not currently using and cancelling completely, you can offer to let would-be churners “pause” their subscription. Their settings, data, and relationship with your company stay intact, but they won’t be able to use the product (and they won’t have to pay for it). This is exactly what ClassPass has done in the face of fitness studio closures across the country.
Deploying defensive pricing successfully
Be clear on whether you want to proactively offer your defensive option, or bring it up only when customers talk about cancelling. If your customers are very consumer-like (very small businesses or solo operators) and can cancel without speaking to someone on your team, it may make sense to proactively get a defensive pricing option out there in your customer marketing. If your customers would have to talk to you to cancel, it may be best to only bring the defensive option up then to prevent avoidable downgrades. It’s essential to make sure all of your customer-facing team members are well-versed on any new options, including the protocol for when to offer them.
Offensive strategies to build goodwill for the future
Who is well-positioned to take advantage of offensive pricing?
- If you make distributed work easier (e.g. communication or project management software)
- If you can be a substitute for conferences or other in-person sales and marketing (e.g. lead-generation tools)
- If you can offer valuable expertise (e.g. HR software)
Double-down on existing freemium product capabilities – if you have a product that’s relevant in the current economic moment, and you already have a product-led growth engine, spread the word far and wide! This playbook is being executed by communications giants like Zoom (which is offering free training) and up-and-coming collaboration startups like Threads (which lifted its waitlist).
Offer a promotional free trial or upsell trial – try offering a free trial now to get new customers hooked for later. Take inspiration from consumer facing companies like Peloton, which is offering a 90-day trial of its app in an effort to woo subscribers while they’re homebound. The tactic can also be effective with existing customers if you offer temporary access to a higher tier.
Leverage your data for thought leadership – everyone is hungry for data on what they could or should do in such a strange business environment, and software companies are in a good position to arm their customers and prospects with useful guidance and norms, thanks to a customer base of similar companies. Make sure that product and marketing are talking to fully leverage the asset of embedded data.
Deploying offensive pricing successfully
The most effective promotions will be the ones that are shared widely, so feel free to make the offer juicy (this is temporary after all), so long as it doesn’t mean hefty support or implementation costs on your side. Don’t limit your thinking to new customers; it’ll be easiest to get through to existing contacts at existing customers, and building upon that relationship can only be beneficial in uncertain times.
How to phase back to regular pricing
Make sure that any special pricing you put in place is well-defined. Specify who’s eligible, under what circumstances, and for how long. If you offered price breaks, keep in close contact with customers for the duration of the special pricing period to increase the odds that you’ll be able to successfully transition them back to list. If you offered a special promotion, create a plan in advance for how to turn as many of those new leads into fully-fledged customers when this period ends.
On a positive note, many of these pricing strategies are a win-win in the sense that not only are they helping to optimize long-term value for your company, but they are also helping your customers or potential customers in a challenging time.
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