Episode Transcript
[00:00:00] Speaker A: The art of sophistication is simplification. So if you can figure out how to be sophisticated, your objective should be to simplify.
[00:00:10] Speaker B: Yo, Mike check. What's up, everybody? You're listening to the street pricing podcast, the only show where proven SaaS leaders share their mindsets and mistakes in pricing so we can all stop guessing and start growing. Enjoy. Subscribe, and tell a friend. Now, let's break it down with your host and sought after Slayer of bad pricing, Marcos Rivera.
[00:00:33] Speaker C: What's up? And welcome to the Street Pricing podcast. I'm Marcos Rivera, author, founder and pricing coach, and today's guest. If you were to look up savvy and sophisticated in the dictionary, you would see his picture right in there. Okay, I have Rohit Chabar with me. Rohit, welcome to the show.
[00:00:50] Speaker A: Thank you, Marcos. It's a pleasure being on the show and looking forward to having this engaging dialogue around.
[00:00:56] Speaker C: Awesome. Awesome, man. Now, you're the chief product and technology officer at W Energy, but I want you to tell the folks a little bit more about you and what you do.
[00:01:03] Speaker A: My role at w Energy is relatively new. I just started about four weeks ago, and I'm overseeing all the product functions, the security, compliance and infrastructure functions, as well as engineering in QA. That's my role at W Energy. Looking forward to. I'm super excited to be part of this talented team and looking forward to helping w energy continue its journey of growth and upward trajectory. No.
[00:01:28] Speaker C: Fantastic. And we've known each other since back in my vista days back then, and you were an amazing executive there, a thoughtful SaaS leader. You've been around since like the intel days, right? When you were working at intel. So you know your tech, you know your SaaS, and you've grown companies at multiple levels. And so I'd really love to get into some of what you learn around pricing and packaging. Are you ready to get street with me?
[00:01:53] Speaker A: Absolutely. I'm ready. All for sure, right? I'm not sure I can actually learn. I may have things to learn from you, Marcos, on pricing.
[00:02:01] Speaker C: So for, listen, your insights are going to blow people away. I can't wait to dig into them. And I'm really to start things off, going to sit and lay out the roadmap for everybody, right? So this whole show is based on the book street pricing. So we're going to follow the same format. We're going to start with rewind. Let's go. In your past, you got lots of stories to tell. Tell us a really rich pricing change, a success story, even a failure. Lessons you learned. And then from there, we're going to bring it back to today. Play what's working now, what are some things in pricing and packaging that are really producing benefits? And then we're going to look into the future. Fast forward. So what are things that may be changing or you'd want to change in the pricing model that you think is going to yield a lot of value and a lot of growth for you? Okay. And then at the end, we're going to take it to one more question. My favorite of all, your favorite song growing up. Bonus points if it's 90s hip hop, because that's my genre, and we'll get into that and have a little fun there, right? All good.
[00:03:01] Speaker A: Absolutely. Looking forward to this for sure.
[00:03:03] Speaker C: That's good.
[00:03:04] Speaker A: That's good, man.
[00:03:05] Speaker C: Excellent. Well, take us through, man. Let's go back in time and walk us through a pricing story. We could all learn something.
[00:03:10] Speaker A: Yeah, no, absolutely. I think, look, a lot of stories and we can go on and talk about it. There are several lessons learned in pricing stories that I've had, and of course there are some positive changes I've been able to implement and so forth by leveraging some of the basic principles around pricing and so forth. One thing I would say is, as my experience in pricing is, there is not one size that fits all. And when you're especially working in a private equity environment, you're dealing with multiple products in a portfolio and you have to understand the product lifecycle of that product and its journey and implementing the appropriate pricing strategies based on where it's at. So give you an example, right? We have products that are effectively brand new in the market. You're just looking to gain market share. Of course you have a different strategy at this point in time. You're looking to how do I get penetration? How do I get maximum market share? Pricing becomes less important in that scenario because you want to get in and get yourself established in certain situations where the product is a lot more mature, you want to make sure that you are optimizing and creating that pricing power and leveraging that pricing power to your advantage. So understanding the product lifecycle is the basic first step. So I'll talk about a journey or example in my past life where I inherited a pricing strategy that was put in place in the form of bundles. It was classic tiered pricing model, gold, silver and bronze. Right. And it was rolled out, it was all implemented and we were not seeing a lot of traction in the marketplace. It was very messy. The sales team was struggling, the customers were not buying into the strategy, we were force fitting certain capabilities into what they were asking for. And then it was almost like we created this nightmare, implementation nightmare, where solution looking for users after the sale has been made.
So you can imagine being in the real world, right? Like, who are my users? We should be able to train now that we have sold you this bundle. And customers were confused on why we were forcing these new skus down their path and so forth, right? And the sad part was, that's not how we looked at the business. Also, we looked at this business in terms of what's the core and what's the appropriate cross sell or upsell that we need to implement within that portfolio of products. So the skus that we had in our system didn't match the pricing strategy at all. So we were operating one way from an operations perspective, and we were trying to sell it a completely different way. And it was painful. So we literally had to kind of go back to ground zero. And we started with saying, what's the basic unit that a customer is likely going to buy, and what is that unit, and what do they view it as? And we went into different scenarios around concurrent users or users that are in there and so forth.
Classic. When you go back to the drawing board, you end up creating a lot of complexity as you put all things together and create this massive ala carte menu. Then we started to simplify. So our objective was that was not what we were going to bring to market. We started to simplify the different components into this and eliminate the complexity. So the goal was for us to be able to explain our pricing in one slide in simple 32nd view to a customer, prospective customer.
[00:06:40] Speaker C: I don't think people realize how important that is to take your pricing model and just distill it down into something that you can describe in one slide back in NBA school, right, it's the elevator pitch, right? Can you pitch yourself in an elevator with an executive, but forcing you to cut it back, I always say is if you have to explain your pricing model every single, and or else if that you have in that statement adds complexity. And so if you can strip it down to one page, one slide, one something, and just make it, I would say obvious.
It's a bit aspirational, but try to make it obvious and try to make it in one slide.
[00:07:19] Speaker A: Yeah.
[00:07:19] Speaker C: That exercise alone, absolutely.
[00:07:21] Speaker A: I can't tell you. I think there are several quotes, and I'm forgetting whose this quote is, but the art of sophistication is simplification. So if you can figure out how to be sophisticated. Your objective should be to simplify. And our objective was to simplify the pricing in such a way that it was effective and it can be used and can be explained in a logical way. And then we created, we tied it to the product lifecycle journey that I mentioned earlier. There are some products that were extremely mature, they had a good growth rate trajectory and we were leaving a lot of money on the table and that was pretty obvious. We got in there and say, well, looking at the competitive landscape, looking at where we are and what value we are providing, and I'll go into that a little bit more in detail about value pricing, but what value we were providing and how our competition is priced, we needed to make sure that we align the product maturity to the pricing strategy that we put in place. There are some brand new products we have brought to market and they were in this early infancy stage and we needed to get penetrated into some tier one and tier two customers and we needed to establish a penetration pricing model and strategy. So we had to get aligned to not only simplifying the pricing, but also align it to the journey the product is in, in the market. And there were some new categories we are creating as well. And when you're doing category creation, sometimes pricing becomes less of an importance. Element is what's the business objective and what's the goal that you're trying to solve for. And then pricing plays a tool in solving for that problem. So if you go harness that problem ineffectively, that can actually backfire on you. And it became pretty obvious we made some mistakes along the way. So I wouldn't say we were like all great, we had some hips and starts, but we, I wouldn't believe you.
[00:09:13] Speaker C: If you say you didn't make mistakes.
[00:09:16] Speaker A: But the best part is you want to establish a learning culture market, right? Like you want to be able to get out there, try something, get some feedback and you iterate. Don't be too strong headed on saying this is the way or highway, right? You want to make sure you're iterating. If the customer is in your product market fit and the right swim lane from an ICP perspective, and they're giving you feedback, listen to the feedback. The customer is outside of your product market fit, then you have to question not all feedback is wonderful, right? And you need to make sure that it's aligned. So it's super critical is not only the journey, you're aligning it to the market, the icps that you have within your business and you're well positioned to harness that pricing power. So we were able to increase our Asp almost two to three x on the mature products. Wow. Which was massive. And we were able to improve our penetration on the new products in a big way. And we won some serious tier one business in the past that was not historically even possible prior to this. And it was profitable. It's not like we were giving it away. We had penetration pricing, but we were not trying to optimize on the pricing power on saying, can we get the max out of it? Our objective was to get enough to get to hit our thresholds of good 80 plus percent gross margin, which was pretty exciting.
[00:10:35] Speaker C: That is super exciting. And you think you just revealed a couple of valuable intersection points that I want to point out, right? So everyone's always say, gee, if you want to get good at pricing, you need to talk to the customer, which I agree you do need to talk to the customer, but that's not the only thing you need to do when you bring in the product lifecycle or the product aspect of it. This is a key thing here, that if your product is a category creator, if you are a fast follower or early in your lifecycle, if you're mature, your value is proven and you can solve so many different use cases. If you think about where that product is in the journey, the problem it's solving that is a critical piece of context along with what the customers are telling you. You have to mix and match those things together. You can't do one or the other. It's got to be both.
[00:11:22] Speaker A: Let me add a little bit more color to it. Marcos. The other piece which was also missing on our side was that when you are in a mature market, there are certain norms that are already established within the market. So when you're creating a new category, you do have some freedom where you can say, look, this is the pricing structure. This is the pricing model. This needs to be when I had inherited a prior pricing situation and going back a little bit on the rewind, is that we were pricing things really in a non SaaS way. And we want to be a SaaS company. There is a specific norm and structure that we had put in place. So we had to establish some level of tier pricing because that was the norm in the industry. Swimming upstream to a mature market is very difficult and it was painful. So you have to understand where you are, right? Are you a true category maker, where you have some leverage? Are you in a mini, semi mature market or in a very mature market? When you mature market, customers already has an expectation of how your pricing tiering should be for a true SaaS application. And just making sure that knowing where you fight your battles are super critical and important. Right. So aligning it to the market is super critical in this job.
[00:12:37] Speaker C: Yeah, I'm spotted because everyone knows my roots are in product management. I just naturally see this Venn diagram coming up in my mind of like the product maturity, the market maturity, the customer input, and that middle overlapping section. Right. Is that pricing strategy at the end of the day. But you saw those misalignments. Right away you came in and you saw the misalignments. And that's where after realigning the right pricing strategy to get to more penetration or to get to more value extraction because of the maturity, two to three times average selling price is not something to scoff at. Like that's a major bump up, right? And I think a lot of companies would want to see that. And so these simple adjustments in alignment, I think make all the difference in the world. Give me the one big takeaway. Like if you think about that rewind journey of that company and sitting back there that one time and seeing what the hell is going on with these skus and what we're selling and what's going on, if you can tell me the one most critical step you took to get them to a better place in monetization. What was that big step?
[00:13:39] Speaker A: Yeah, I think it was literally exactly that was the SKU reengineering. We had to take our entire product set and break it into multiple skus. And those skus needed to be aligned on how we have entered them in our CPQ or Salesforce and our pricing book. So the only way a good pricing strategy works, if the plumbing is in place and you have all the right components broken down to the right level of skus, if your skus don't match up to your pricing strategy, you're going to create a lot of noise when you're implementing it. So we needed to create a seamless operation of saying, explain the pricing. These are the skus that are tied to that pricing module, and those skus are the ones that the operations team is going to implement and support. And then that gives us a clean path on white space opportunity on top of it, which is what are the SKUs that we can upsell or cross sell to the customer? And does that effectively line up to how the customers will actually buy? So training the customer is the hardest part. If you can adopt your pricing strategy to align to how they actually buy that solution and what their natural transition would be to be able to do cross sell and upsell. That helps a lot along. So it's a lot of hard work to get to simplification, but it comes from true understanding of the skus that the customers are and what your capabilities are right and so forth. So when we did this whole SKU rationalization activity, it revealed that there was a lot of skus that were unused and should not be used at all. So we were able to retire a whole bunch of skus and we started to focus on which skus are being used the most and sold the most. And then we knew what our true white space opportunity is relative to what skus they currently have and what skus they don't have. An adjacent customer like them should have, and gave actually great opportunity for our sales team and our marketing team to pursue those customers effectively and enable to cross sell and upsell on top. So it literally boiled down to having a deep understanding of the skus and aligning the skus to your pricing strategy and your approach and operationalizing it doesn't.
[00:15:50] Speaker C: Sound sexy at all, but it's actually very important to do right. And I had this one guy, he called it skutilization, which I thought was a funny term that he used, but it was exactly that. It was that rationalization and that where the gaps were. And he really used it as a tool for sales to cross sell and upsell and just understand which skus really mattered, which ones didn't, which also clue you in as to the selling and buying and usage behavior. But I got to ask you this, how long did that take? Because I don't think it takes that long to do something like that. I mean, getting the data is probably the hardest part. But how long did that take? Do you remember?
[00:16:21] Speaker A: Yeah, it's about six plus months, actually. So it did take a while to decode it because you're adopting all this work, and it took about six months to effectively do the work. But the initial part of once the skus were rationalized and implemented, then it's about how do we then align these skus within our respective operational dashboards and Salesforce? And that took a bit longer to go implement and so forth. But the decoding of the skus from what the customer actually had was the hardest part because you have existing customers that they're buying XYZ software or a bundle that you're in that situation, and then figuring out what customers actually have is the hardest part because sometimes companies don't have the discipline of keeping all of that up. But once we got that implemented, we knew what we could do going forward. It was easy. The SKU work was relatively easily for go forward basis. That took only six weeks, Marcos. Right. That's easy.
The six months, most of the effort was applied to what existing customers do we have and what skus do they actually have? Creating an inventory of all of that work was truly hard work, a lot of hard work. And I will say I was blessed with a very strong team that knew this stuff and worked really diligently and hard. And we had good alignment at the executive level, where this was an important initiative, and we made sure that this was something we get done. Yeah.
[00:17:46] Speaker C: And the dividends are paying down the road, like you said, now that you did the heavy lifting, which keeping it real. Right. It wasn't easy. It took time, it took effort. But once you did it, you're able to reap the benefits down the road, it's easier now. You're in much better position, much better visibility, all these things as a result. But now I know why most companies don't do it right now. We know it's freaking hard. It's going to take time. Right. Especially when you're in that deep. You know what I mean?
[00:18:08] Speaker A: Absolutely.
[00:18:09] Speaker C: Awesome, man. Thank you for that big lesson here. And the way I think about it is you have to factor those things in. It isn't all into understanding just the product value or just understanding the customer or just understanding the market. You got to get that intersection and then honestly, just put your head down and do the grindy work it takes to really get your data in order, in this case, Skus, and use that as a mechanism to align what you're selling to how they're buying as a customer in order to achieve that goal. I think that's brilliant. Now, taking us from the rewind, taking us now to today. Right. And you have a couple of angles you could play because I know you just started at W Energy, but what's working in terms of pricing and packaging today that you're seeing? It's really yielding a lot of benefit.
[00:18:54] Speaker A: Yeah. I think what's working today is aligning the usage now with SaaS applications and modern applications. Right. You create a hypothesis and you say, we believe that these are the skus the customer is going to buy. We installed them, we gave them, we trained them. Are they actually using those skus? Are they actually getting the ROI or the benefit of those cubes? Right. And there is a lot of tools out there in the market where you can do usage analytics and trying to figure out what's the duration of time that they're using the SKU or that module or not. And I'm going back to the word sku because it's now in my head of how it goes back in my memory of what it is. But basically the product or the module that you're offering, does your initial hypothesis align to the actual usage of the customer? And if they're not using the skew, more than likely come renewal time they will downgrade or you will have attrition. You'll have frustration where customer feels like they got sold something and they're not utilizing. That's a recipe for failure.
Getting proactive on looking at the customer's usage patterns and making sure that that's embedded in the customer success culture and being part of this is super critical because then you can effectively solve for that disparity and said, you have these ten skus, dear customer, or these ten modules, we notice that you're only using six of them. The four are not being utilized. What can we do to help you, train you, give you more information and oh, by the way, that creates an opportunity always. By the way, they actually need 15 skus or 15 modules extra that is sitting on your portfolio. So it's keeping that customer centric mindset as the forefront of it is super critical because then you can get proactive and get some of those conversations up front and not wait for the renewal conversation to figure out what's really going on.
[00:20:52] Speaker C: Also, they're just not sitting around waiting and thinking, what else could I buy today? Right? Sometimes you have to bring that forward using the usage data to help really understand where are those areas. You can help them more, add a lot more value. But let me flip the script a little bit on you for a second. What if there's naysayers out there that say no usage based pricing or usage has no place in enterprise settings? Enterprises don't want to deal with that crap. They don't want to get nickel and dimed. They don't like the unpredictability of usage when it comes to their modeling. What do you think of usage based pricing in the enterprise? Is it fit or are they ready for it? What are you thinking there?
[00:21:28] Speaker A: Absolutely. I'm a big fan of usage based pricing. So I'm one of those schools of thought where I believe that usage based pricing not only gives you data to improve your UI UX capabilities within your software and figuring out what's being utilized or not, but also gives you great early indicators that the customer is thinking that they are not your long term solution provider as well. There are so many benefits outside of pricing that usage can give you and inform you. If the usage drops all of a sudden or you get a handful of people, or you see a lot of data being extracted out of your applications, guess what? They have already chosen a different vendor. You're just in standby mode while they are transitioning from your system to somebody else's system. So usage is a very strong early indicator of attrition. The other piece is if you do engage these customers on a proactive basis, which customer is going to resist maximizing the ROI that they have invested in your software, in your application that they purchased from you, every customer is going to want to maximize their ROI. Am I getting my values work being usage focused? You are now educating the customer what's the true ROI of their investment in the software they've purchased from you. And that to me is super critical because you have to continue to reinforce the ROI metric in the customer's mind to make sure that they feel that they are getting the value. So that engagement to me is super important. And all the more reason with switching becoming more and more easier even in enterprise applications as we are moving to SaaS and it's no longer on Prem and all of that, and customers can switch relatively quickly, we need to be more diligent on usage based approach and usage based pricing because it's super critical.
[00:23:13] Speaker C: This is something that I want to also get everybody to really listen into because this proactive approach is, are you getting the ROi? And let's use the usage as a measure of that and let's get you there, right. Instead of maybe hiding in the corner, I'm just going to say it right. Some companies hide in the corner, hope they keep paying. Oh, they're not fully utilizing the system. Let me just pray and hope that we get that renewal or just auto renews and I don't say anything, but those days are over. Right now, the way companies are buying software and technology, there's no room for shelfware, there's no room for stuff to be sitting around with only three of your 20 seats being used, or you're hoping to get 50,000 units and you're only using 10,000.
There's really little tolerance for that, especially in this environment.
For you to step up and say, I'm showing you the usage, Mr. Customer or Mrs. Customer, and we need to get you using this more so you can get the full value. I think that's bold, and I think it builds trust with the client. So big on that.
[00:24:18] Speaker A: Absolutely. I'll give you an example not too long ago, without naming names of the company specific in order, but I will say that I was talking to a vendor and they had sold us the software a couple of years ago and we had no usage of that software whatsoever. And they're looking for price increase in a renewal. And I said, our fault. We need to go solve for this, that we didn't get it. But there is a little bit of responsibility on your side as well. It's like how engaged were you to make sure that your software is being utilized by us? And that didn't leave a good taste in our mind, and it creates a problematic situation. So I put the challenge back on the vendor and said, please come back and empathize with us, that we were not using software to their full extent or hardly any. And now you're asking for a renewal or you're asking for a price increase. It makes no sense at all. This was a very straightforward decision, and the vendor actually understood and empathized with us, and hopefully we'll come back with a positive outcome. Right? That's what I'm hoping, but, yeah, if you're not engaged and you don't understand whether your customer is using your software and reaping the ROI, you're literally waiting on potential attrition or guaranteed attrition to be happening on your books.
[00:25:31] Speaker C: Yeah, that's an awkward conversation too, right? But it's true. Look in the mirror and make sure you're doing everything you can to make sure they're getting the value okay in the future. Now, fast forward, what do you think is going to change, man, in monetization, pricing, packaging, all that? Do you think this usage thing is going to just take over and the whole seats or user base pricing is dead? Do you think there's something else that's going to a new wave that's going to come?
[00:25:56] Speaker A: What are you thinking, Marcos? I should be getting some advice from you on this one, right? But I will say that I'm a big fan of value based model and time and time again, with so much data and so much information available and there's so many, there's a plethora of competitors in most of these markets and so forth, you have to assume that you're going to get commoditized. So, fifth, a vendor can fully understand and appreciate that, what value they are providing to the customer. What can the customer do with your software? And they cannot do without your software or a competitive software, even better. And that extra value is where I think the holy grail is. It's the hardest thing to figure out.
[00:26:44] Speaker C: It is the hardest thing. You're pointing right at the top.
[00:26:46] Speaker A: It's the hardest thing to figure out. But if you have candid dialogue and that focus and the product team actually leads that charge and understands that function and not rely on other functions, and needless to say that yes, you should get diverse input from various different sources, but this is where I feel like pricing ownership within product management, who's setting the product direction, the roadmap, the strategy, the vision and having that. You can have those tough conversations without being judged right effectively, without taking a risk on your pipeline or whatever else have you. You can effectively have the conversation say, please let me understand, what value are we providing towards your end result? What can you do now that you have this software? What can you do more? What can you do less? And try to quantify that value? And it's not that hard to figure out, hey, I can do these 20 other tasks much more seamlessly. I can go increase my business by one and a half x than I'm currently doing, because now I don't have to worry about doing this. Or I can reduce and create more efficiency or create more security or more safety in my environment, and that should lead to more customers coming to our facility or to our areas and so forth and so forth. So there are different ways you can quantify that benefit. It's not that hard to do, but having that conversation with the customer who actually understands the value of your product and truly understands the true value approach, and then if you can marry it up with saying your value versus your competitors value, what they're providing, that also helps drive your product strategy as well. Right? So this conversation can actually have many, many beneficial outcomes. But I feel like it doesn't happen as much as it should. So I would love to see more of this conversation happening. And I love to see the future to be more value based pricing so we can harness and maximize what we have built within this and solving for the customer in a positive way.
[00:28:50] Speaker C: Dude, you're speaking to my pricing mind and my product management mind and my growth pe mind all together in one. Thank you for that last piece. And I love what you said too, by the way, which is, hey, what do you do more? What do you do less? You start there, start simple and allow them to talk and explain that value to you. It's your job to collate it, make it sense aggregated and all that stuff, but just getting them to talk, having those conversations, first step in that journey, man. Thank you so much for bringing it today. I love, by the way, this proactive theme that I'm picking up in all of the stories and the lessons and the things you're talking about, stepping up and aligning that product, the customer, the market, being sure that you're talking proactively to the client, looking at usage data, rationalizing those skus, taking that six month project on headfirst and getting it done, all these key things, it takes guts, it takes bold, and it takes action. So I really appreciate you bringing that to the table today. But I do have one more question for you before we wrap up. My favorite one of all, which is what was your favorite song growing up? What's your favorite jam?
[00:29:55] Speaker A: Well, I have to pick a hip hop because I'm competitive and I want the extra ten points.
I got to get the extra ten points, right? So I'd say ninety s jam for hip hop goes for Opp for me.
[00:30:09] Speaker C: Oh, naughty by nature opp. One of the biggest jams of the very infectious. The moment you hear the beat in the beginning, you know it, you know what song it is, and everybody sings along. I love that too, man. And listen, thank you for coming in here, dropping the knowledge. And I can't stress enough how important it is to take that first step as you were talking about and being proactive. No one's going to push you to do it. You got to do it yourself as a SaaS leader, as an operator or whatnot. So appreciate all the lessons here today. And team, if you're listening, take these lessons to heart. Use it to stop guessing and start growing, and we'll see you next time.
[00:30:48] Speaker B: Thank you and much love for listening to the street pricing podcast with Marcos Rivera. We hope you enjoyed this episode and don't forget to like and subscribe. If you want to learn more about capturing value, pick up a copy of street pricing on Amazon. Until next time.
