Choosing The Right Pricing Strategy For Your SaaS Startup

May 19, 2017 3 min read

Pricing strategies have always been a hot debate. When it comes to converting consumers, the secret to SaaS sales is learning what your buyer wants to pay for and understanding consumer behavior. Emotions and psychological triggers influence purchasing behavior and since people depend on various products and services to fulfill their emotional needs, pricing should also meet those needs. Although every person is different, but in many instances, the human mind is prone to react in a similar manner. If one understands these subtleties in the human mind, businesses can find creative ways to ethically motivate more buyers towards saying “Yes!” to their products and services.

Here are the most common pricing strategies that reveal insights into minds of consumers.

Charm Pricing

Prices that end in the numbers ‘9’ or ’99’ are referred to as “charm” prices. It is the most commonly found psychological pricing technique. It works on the principle that consumers read prices from left to right with precipitously decreasing attention. Thus a price quoted as $9.99 would be assimilated as $9 rather than $10. Although this seemingly works well with most companies (the best example to this is Apple’s website where everything ends will a ‘.99’), It’s not always applicable in the case of SaaS pricing according to our experience.

Round Pricing

We experimented with the Charm Pricing and then decided to ditch those $9.99 and $24.99 price tags in favor of rounded amounts because we observed that these are easier for the consumers to process. Even some studies show that people appreciate the honesty of a flat amount and associate these round prices with higher quality. This often encourages more favorable attitudes in the consumers towards products and services that carry price tags ending in double zeroes rather than a couple of 9’s. SaaS companies which involve recurring payment models in which prices are named and sometimes negotiated should take note, and consider this consumer psychology when doing business.

Prestige Pricing

The idea of prestige or premium pricing is to set prices much higher and convince the buyers that their product or service has an added value compared to its competitors. The psychological advantage in this pricing that companies use to increase sales and product visibility is the strategy to lure niche customers who associate the quality of a product with its price. These are those consumers that define their social status with the brands’ services they use.

Such consumers who are obsessed with premium priced products care less about what value they are actually receiving for what they are paying as their main objective is self-expression and the fact that not everyone can own the product they just bought.

Comparative Pricing

The act of comparative pricing can cause unintended effects if there is no context for why the prices should be compared. Asking customers to make explicit comparisons about the price of your product and of your competitor can often cause them to lose trust in you because of the mere fact that asking them to make a comparison might strike them with a fear that they are being tricked in some way.

The bottom-line assurance of lower prices isn’t always the best solution, while it’s more important to position the messaging around how the lower prices are true, for example, the elimination of needless expenses through their online-only approach.Thus the focus should be on why prices are cheaper, not just that they are.

Discounted Pricing

When a sale is offered with a previous price, side by side with a new one, it does lead to making more sales because customers feel they are getting a bargain and not many are interested in researching the drop in price. To make the new pricing strategy work effectively, companies make use the psychological tricks like changing the font, size, and color of the new price to make it look more appealing. This trick triggers an effect that consumers interpret the visual difference to a larger numeral distinction when placed a little bit away from the original price, which causes the customers see the new price as cheaper and a better deal than the previous price.

Get Smart With Your Pricing Strategy

Develop your pricing strategy over time, guided by debate, scrutiny, and, most importantly, feedback from paying customers. In our case, the Freemium model helps us give a boost by offering a free-to-use product, supplemented by additional paid packages. Initial adoption is one of the biggest challenges facing a SaaS business, and the freemium model makes it as easy as possible for customers to get started with your product. Additionally, understanding the psychological triggers that motivate all of us, you can build a stronger connection with your audience and influence your customers to take the desired action.

Amol Gupta

Tech Freak | Dog Lover | Wanderlust | Head of Content & Customer Success @Statusbrew

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