February 4, 2015
3 ways human behavior can help your SaaS pricing strategy

Congratulations! Your brand new software widget is finally ready to hit the market! Now you just have to figure out how to sell it—and at what price—to get the most return possible on all of your hard work.

The Price Intelligently blog is full of tips and lessons to help you do your pricing strategy the right way, but in this post, we wanted to highlight a few lessons from the fields of psychology and behavioral economics that can help you maximize your pricing strategy and turn prospects into customers.

Lesson 1: Sell time, not just product

When you’re talking about your product, your first instinct is probably to highlight its benefits and unique value propositions—your software widget is a game changer, after all!

But often, your customers don’t value your products based solely on features. They value it in terms of time. And not just time that you’ll save them, but in terms of the time that they’ll spend with your product. Consider the Apple TV ad below. There’s little discussion of features and screen sizes. Instead, the focus is on how time spent with the product will improve your life.

 

Takeaway: Focus your marketing language on both product features and product quality time.

Lesson 2: Provide options (but not too many)

We’ve all been there—you just need to pop into the store to grab a simple item like toothpaste, but as soon as you get to the aisle, you’re paralyzed with indecision at the sheer number of options staring you down.

Do I want the cavity control? Is it worth 20 cents more? What flavor? Why is this box orange and that one white?

800px-Toothpaste

Don’t let your widget fall prey to the same trap! It’s human nature to get bogged down in a multitude of options, freezing like a deer in headlights when a complicated decision looms.

Takeaway: Offer enough options to meet client needs, but not so many that you lose potential customers to indecision.

Lesson 3: Use a decoy

While you’re thinking about just how many options of your software widget you should offer, there’s one more thing to consider. Offering a premium version of your product—even if you don’t intent to sell many versions of your product at that tier—can influence people to purchase your product.

This is especially true of products that are new, which potential customers might not know how to value otherwise. For example, as Dan Ariely discusses in Predictably Irrational, when Williams-Sonoma first introduced a machine for making bread, the devices didn’t sell well, as no one had a point of comparison for how much a bread machine should cost. To solve the problem, the company did something unexpected—they released a larger, more expensive bread-making machine, and then saw an increase in sales of the now-cheaper original option.

Relatedly, you can make a given price point seem much more attractive by offering a slightly worse version. For example, say you offer a $10 version of your software widget (which is the most profitable for you), but most people choose another version. To make the $10 plan seem more attractive, you can add a plan that costs $9, but has far fewer features, making the $10 plan seem like a steal by comparison.

Takeaway: When deciding on price points, don’t be afraid to throw in a decoy or two!

There’s obviously a lot more to pricing than these simple tricks—just take a look at nearly any other post on this blog—but keeping these quirks of human behavior in mind can help to guide your pricing strategy in the right direction.


Looking for more insight into how to get the most out of pricing your product? Check out our free ebook!

New Call-to-Action


Chris is the Director of Content at Price Intelligently. He enjoys CrossFit, airplanes, and cephalopods. He holds a PhD in Linguistics from the University of Oregon.
comments powered by Disqus