Wednesday, February 24, 2010

Publicly Available Pricing: Theory and Practice


A lot of what I write on this blog has to do with the changes that have happened as a result of buyers’ increasing access to information. Often, these changes are looked at from a general perspective. Today, I want to look a very specific example of how this overall market transition affected us at Eloqua. It’s a very representative, specific, example of what’s going on in the market in general.

Last week we made the pricing for Eloqua’s software product packages public on our website for the first time:

The starting prices range from $1450 to $10,000 per month, depending on the level selected.

Just hearing this likely makes everyone who has ever been a field sales rep cringe. Won’t this blow up deals? What if an Enterprise buyer hears of an SMB buyer making a purchase at 1/10th the price? Won’t you be excluded from deals based on the price being seen as too high (or too low)?

Unfortunately, these arguments are based on an incorrect assumption that without talking to our sales team, buyers will not have the ability to form these perceptions of our price. That assumption, however, is false. Now, buyers are able to gather information, form opinions, and come to conclusions without ever talking to a salesperson. The sales team is competing with Google as a source for information, and that is not an easy battle to win.

So, with the market transmitting information very efficiently, the question for us was not whether the market should have access to opinions on our pricing – they already had formed opinions. The question was whether those perceptions could be better guided by contributing accurate information to the conversation.

In our case, the breadth of organizations we served had led to a perception in the SMB market that we were significantly more expensive than we actually were. So, we were better off to correct that data point in the market, rather than allow mis-perceptions to be the guiding data point, as that could easily lead to not being considered in a deal at all if the perception was significantly different than reality.

As with any change of this type, agreeing on the theory of what is happening in the market is much easier than the tactical implementation of the changes that are needed. There was much debate internally, and many points of view were raised. However, the feedback has been overwhelmingly positive, and even in the short time it has been public a number of conversations have started with buyers who had held misperceptions of price.

Are there any changes like this that your organization is considering that are easier to agree to in theory than in practice? Will you move forward with them?
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12 comments:

Gord Hotchkiss said...

Steve...

This was a decision we also struggled with...EVEN THOUGH all our research supported your conclusion in this post. From the prospect perspective, it is absolutely the right thing to do, but it's tough to swallow this approach internally.

Steven Woods said...

Gord,
it's interesting how easy it can be to all agree on what needs to be done and then have difficulty pulling the trigger on executing. Then again, it's a lot like dieting vs. the dessert buffet. :)

Steve

Jason Stone said...

Steve, this is very interesting. What about competitors having such direct access to your pricing? Any concern there?

jascha said...

Kudos to you and your Team Steven. I'm sure this was a lively discussion internally. It's a great move.

Steven Woods said...

Jason, Jascha,
thanks for the kind words. It was definitely a lively discussion, but in the end there were so many unfounded rumours being circulated that we felt it was much better to just open up the transparency and show what our pricing actually is.

Jason, to your question, we're already very comfortable showing more value per $ than competitors - many already do try to compete aggressively on price. Luckily, most marketers are quite savvy and are looking at whether they are setting themselves up for success, not just trying to find the cheapest solution.

Rod Whisner said...

Steve,

Our team read this posting with great interest, since we've debated this topic internally for years.

In our situation, our SAAS is more expensive that most prospects expect, however there is a considerable gap in what we offer for the extra cost - dedicated customer service, in-house manufacturing, experience, etc. - intangibles that sometimes aren't fully presented because we're immediately DQ'd on price.

Any thoughts on how your theory might work in the inverse, as explained above?

Regards,

Rod

Steven Woods said...

Rod,
it's a great question, and one that we also wrestled with. The realization that we came down to was that it didn't matter whether the pricing was higher or lower than the market - there will always be lower and higher priced competitors, but whether the pricing was higher or lower than what people thought our pricing was.

In our case, our price reputation was far higher than reality, so transparency was a great benefit. I would suspect that if you are already a more high price/high value option in the market, you may be in a similar situation, as reputations often tend to move towards extremes.

Galen said...

I think you made the right decision, and I agree with Gord that it's a tough decision. I loved that you mentioned you were competing with Google as a source for information. I think this is all too true. People will find the information they are looking for, regardless of source or accuracy. By publicly disclosing pricing, you can at least control the accuracy of information and the message around it.

I think B2B companies often worry to much about disclosing price for fear that it will reduce leads or interest. Personally, I think disclosing is a good way to, in essence, qualify prospective customers. If the price range is just way out of their reach, neither the buyer or seller wants to waste time. Better to make decisions quickly and move on, making the most of your sales staff's and your prospective customers' time.

Steven Woods said...

Galen,
I think you are right that if starting pricing removes buyers from consideration, that's likely not a bad thing. If there is truly a big area of value that is different from competitors that needs to be explained the need for transparency might drive a need to change this in the productization.
Steve

Matthew Stibbe said...

I've been putting representative or 'typical' prices on my company website for more than a year now.

It serves a couple of purposes: 1) it helps readers understand the type of work we do and how much it costs before they contact us, 2) if they can't afford it, it saves us both time because they don't call us, 3) if they can it gives them a way of estimating what their project is likely to cost before they contact us so that the conversation can focus on what they want rather than how much it costs.

It's also good usability practice for websites. See Jakob Nielsen's recommendations: http://www.useit.com/alertbox/prices.html.

Nicole Filiatrault said...

Steve, congratulations. These days the internet is bringing us squarely back to the days of a small town, where everyone knows everything about you, whether you like it or not. That's good and bad, but it's so fundamentally true that we may as well put the facts out there as the honest - and true - foundation for all the conversations about us.

I can appreciate how tough a sell this was internally, so again, kudos to you guys.

listaction said...

Really? I was considering Eloqua as a potential replacement for my current MA suite, and I couldn't find it anywhere on the site. I browsed, searched, then happened to check out the management team profiles, and went on to read the blog articles and luckily ran into the pricing link. You need a better search / navigation on your site - assuming you want people to find it :)