… But maybe you’re losing deals because of the perception of your pricing—not the actual price.
This isn’t supposed to be a pricing guide like you’ll see from experts throughout your industry. You’re not going to get any step-by-step instructions on how you should price your product or a how-to guide on best practices.
Instead, we wanted to present a thought exercise based on real-world win-loss pricing data.
At Clozd, we have conducted thousands of win-loss interviews. We were able to pull data from those specifically on pricing to go over some key themes that we’ve seen other companies encounter.
After taking a deep dive into our win-loss data across hundreds of B2B companies, there were four pricing-specific decision drivers that negatively influenced sales opportunities.
Decision Driver 1: Perceived Value and ROI
Many buyers and sellers will say a sales deal was lost because the product was too expensive. However, when our interviewers really hone in, it isn’t just a high dollar amount, but actually that the buyer didn’t think the value they’d get from the product was worth their money. They did not see a clear ROI.
It’s interesting how pricing can be relative.
One example that comes to mind is a big win one company had.
The buyer told them that they were actually significantly higher in price than their competitors, but the buyer found so much more value in their product. So, they went with them anyway.
On the other end of the spectrum, there’s an example of one company being much less expensive than its competitors, but the buyer said the product wasn’t geared to her needs as a small business. As a result, she couldn’t justify the spending.
In this case, she ultimately said the product cost too much, and that’s why she didn’t buy. But, it was actually that her perceived value of the product didn’t justify the price—not because it was priced too high.
Another reason the perceived value or ROI may be more likely the reason for a loss rather than price is that the buyer did not see enough differentiation between the vendors they were evaluating. Several interviewees said things like, “Not different enough from other vendors and it cost more,” or “No differentiation between vendors so it came down to price.”
Both of these end up stating it came down to the product cost, but the real reason was that they weren’t seeing enough value to justify purchasing the product.
Use this as a learning tool for your company. Rather than running to your pricing team complaining that the product is priced too high, try taking a deeper look at why the buyers are going elsewhere.
Perhaps the takeaway is that the sales team needs more training on the product and its features and how to best portray all it can do for the buyer. Perhaps more marketing materials that call out the differences between you and your competitors will help the buyer better articulate what you do better. If your product is better and meets their needs easier, pricing isn’t going to be the battle.
Decision Driver 2: Getting Pricing-Market Fit Right is a Key Part of Product-Market Fit
Another primary decision driver around pricing can be summarized with the word fit.
Think of it as similar to product-market fit—you make sure the product you are selling fits your market and solves the problem your market needs solved. We think of pricing-market fit the same way. Your pricing model is aligned with the businesses’ needs in your target market.
Our win-loss data shows pricing-market fit failing or succeeding in several areas but here are two: the pricing model itself, and contract terms.
Pricing model
One recent example (outside of our win-loss data) of a company misaligning with an intended market on their pricing model is Hubspot. When Hubspot entered the CRM space they were aimed at small and medium-sized businesses. With less expensive pricing, easier-to-use features, and a leaning towards inbound marketing, Hubspot started to win against companies like Salesforce.
However, a problem arose as soon as Hubspot tried to sell to sales teams and enterprises.
Marketing teams using Hubspot’s inbound methodology were using the Hubspot CRM to gather inbound marketing leads that expressed an interest in the company. The Hubspot CRM was free to store these names but as soon as you wanted to send these leads through a marketing automation campaign, you had to pay for the marketing automation module and pay for every name in your CRM.
Though this wasn’t a big deal to marketing teams trying to keep tight control of the quality of leads in their CRM, once they started selling to teams that were uploading large lists of prospects into the CRM, they quickly became too expensive.
Outbound sales teams like uploading large lists of prospects into their CRM and then leverage outbound tools to try to book meetings with these prospects. With this strategy, many of the names added to the CRM are meaningless and the whole idea comes down to a numbers game. It takes a lot of outbound activity to generate opportunities.
With Salesforce, teams using this outbound strategy could upload thousands of prospects and track every activity happening with that prospect without paying per contact in the CRM. Hubspot, on the other hand, became cost-inefficient to do this if it was also being used by the marketing team.
For example, if the marketing team was using Hubspot’s marketing automation tool they were paying for every contact in the CRM, regardless of quality. If the sales team wanted to upload a list of 10,000 people into Hubspot to try some cold outreach, they would end up paying an additional cost for all of those new names. This caused several companies to eventually adopt a different CRM to support the outbound approach.
Hubspot has since updated its pricing model which has helped their pricing-market fit. Now, you can actually designate which contacts in Hubspot should be included in your marketing automation pricing and which contacts are basically just a name in your CRM.
Contract Terms
Another element that should be considered in pricing-market fit is if your contract terms fit the market you are trying to sell to. Some of the reasons we’ve seen contract terms win and lose deals are: they are too rigid, the contract length doesn’t fit your buyers, the invoicing schedule doesn’t match your buyers’ needs, and more.
Let’s look at an example of how contract terms work in pricing-market fit. Think about your buyers for a moment. Are they individual buyers, startups, enterprise companies, government agencies, or something else? Each of these different types of buyers are facing unique challenges.
If your primary buyer demographic is made up of small business owners, one problem they constantly face is cash-flow.
If you are forcing them into long-term contracts with a large upfront payment but your competitor is offering shorter-term contracts with flexible invoicing schedules (like monthly or quarterly), your buyer is going to view the competitor’s pricing more favorably.
Instead of forcing buyers to meet the best interests of your company, you could offer incentives when they do (e.g. better pricing for longer contract terms, etc.).
Decision Driver 3: Clarity and Transparency
The third decision driver we found in our win-loss data is clarity and transparency.
Throughout the data, buyers told story after story about deals being lost because they were unclear on what the pricing entailed, were thrown off by a hidden administrative fee, or felt unsure about what the product actually offered after they went through the sales process. Clarity is key to winning deals and can be easily misconstrued as “too expensive”.
Clarity
Pricing clarity seems to be a big issue when it comes to winning and losing deals. One buyer had an experience where they were told they could customize their pricing per user, but they didn’t know if they could customize the number of users or the number of licenses to affect pricing.
When they tried to figure it out, they kept getting different answers, as if the sales rep didn’t even know. This ultimately led to them not moving forward with the company even though they liked the product. Their pricing was too unclear and they weren’t getting the answers they needed.
Your buyer needs to be 100% clear on what they’re paying for and what they’ll get out of it. One thing that infuriates buyers is confusing pricing.
Many times, you’re selling to someone who needs to get budget approval. If they can’t relay what your costs are, what they cover, and the benefits they’ll see, your pricing may not be clear enough. All this to say, your buyer may walk away claiming the price was too high, but in reality, they may not have been clear on what all is covered in that price.
Transparency
Be transparent with your pricing. Many buyers claimed that a big pain point was not knowing the cost of the product upfront. Although there are obvious reasons for keeping your pricing a little close to the vest, the argument for putting your pricing on your website or giving it to the buyer upfront is compelling, too.
Being transparent with your pricing and avoiding/thoroughly explaining any hidden or all-encompassing fees can be the one thing that sets you apart in your buyer’s eyes.
One buyer said the company they were evaluating posted the pricing on their website so he could quickly calculate what it’d cost him and was able to get that approved by his manager. When he got the quote back after meeting with the sales rep, it was more than triple the amount he calculated from their website pricing.
There was an administrative fee that they tacked on that he wasn’t aware of. The buyer ended up feeling “baited & switched” because they appeared to have transparent pricing but that ended up not being the case.
In summary, clear pricing from the get-go is an instant selling point, hidden terms and fees can detract from the usefulness of the product because the buyer can get so hung up on the price, and explaining what the “fees” entail can actually help your case.
Decision Driver 4: Be Mindful of How Your Buyers Perceive Switching Costs
When thinking about pricing, some thought should be placed on how switching costs impact your buyer’s decision. Switching costs play a role for the incumbent vendor as well as the challenger. We’ve seen many cases in our win-loss programs where an incumbent vendor had a worse product, worse sales experience, and worse pricing but they were so ingrained in the processes and know-how that it became nearly impossible, or at least incredibly difficult, to switch.
Thinking about how to make your product sticky is one way you can use switching costs in your favor. If you are the challenger, you need to think about the full cost your customer might pay to adopt your solution.
With complicated products that sometimes form the entire backbone for a company, we see buyers sometimes running both solutions simultaneously to ensure critical systems don’t fail.
When you are communicating pricing in this situation, have some empathy for the buyer. They are not just paying your price tag but literally might be paying that twice while they work on replacing the incumbent system.
Last Thoughts on Pricing
Pricing can obviously be a deal-breaker during any sales negotiation. Sometimes you really are just simply out of the buyer’s price range, and in those circumstances, figuring out a different pricing strategy may be the right next step.
However, as shown throughout this article, pricing can many times be pegged as the scapegoat and reason for a loss, even when that may not be the case. If you find your company is losing deals based on pricing, try taking a deeper look into each deal.
You may find the root of the problem is more about the perceived ROI or value, or the pricing model isn’t fitting the market, or the terms are too confusing. There are several different reasons you might lose a deal and likely cannot be solved by pricing adjustments alone.
Clozd offers win-loss analysis services that help you uncover the real reasons why you win and lose deals. If you’re interested in learning more about how Clozd can help you craft a custom win-loss analysis program, check out https://www.clozd.com/win-loss-analysis.
Pragmatic Course: Pricing | $1,195
Learn more about pricing segmentation in the Price course. You’ll also learn how to determine market value and how to maximize your profit while minimizing discounting.
You’ll be introduced to several pricing tools including
- Product Portfolio Worksheet
- Isoprofit Tables
- Pricing Ownership Matrix
- Value Matrix
Pragmatic Learning Network: Accelerate Your Subscription Business | $500
Pricing expert Mark Stiving brings his expertise on subscription models to our Pragmatic Learning Network to help product teams improve their subscription businesses and drive growth.
In this self-paced course, students will learn:
- The three revenue buckets and how they drive prioritization
- The three levels to pull to create and capture more value
- Which growth strategies are best based on the life cycle of a product
- The four ways to grow revenue from a single customer
