Dan Balcauski: The first problem is that most executives think that what you charge determines your success. In fact, who and how you charge determines your success. First thing everyone goes to is the number right? Should our prices end in fives or nines, but ultimately they very much pale in comparison to really making.

Intentional decisions around, who we’re selling to, right? Really understanding our customer segments. Because, pricing and value are intensely connected and value is, not a. Objective characteristic of the set of bits, but a subjective assessment in the minds of your customers.

Jeremy Balius: Welcome to Go to Market Playmakers, where we bring you winning go to market strategies from the industry’s best. Each episode we sit down with B2B Tech and SaaS founders, executives, and industry Playmakers who’ve mastered the art of taking products and services to market. Whether you’re scaling a startup, refining your go-to-market motion or driving revenue growth through a channel program or partner ecosystem, this is where you’ll learn the plays that work.

I’m your host, Jeremy Bayless, and today’s theme is SaaS Value Packaging, how to Get Your SaaS Pricing Strategy Right. I’m very excited because I’m joined by Dan Bukowski from Product Tranquility. Dan is the founder and chief pricing Officer at Product Tranquility. He focuses on helping high volume B2B SaaS CEOs define pricing and packaging for new products. Over the last 15 years, he’s managed multiple products throughout the product lifecycle. From new concept incubation, product launch, product maintenance platform transitions, and through to end of life.

I think what’s so fascinating about the way that Dan is articulating value packaging, I. Pricing strategy is how clear and concise he’s able to talk about, the pillars of what makes it up, what needs to be considered, how to apply it, and how to structure it within your business.

I took so much value away from this conversation. I hope you get as much value as I did. Let’s get straight into it.

Hey Dan, thanks so much for coming on the show today.

Dan Balcauski: Thank you for having me. I’m excited for a conversation.

Jeremy Balius: Yeah, I’m really pumped to get into all things SaaS and value packaging, but before we get into pricing conversations, I’d love to go deep on your backstory. What’s the origin story? Why SaaS pricing saw ecology?

What is product tranquility? Tell me the backstory.

Dan Balcauski: Yeah. Well, uh, I, I, I hope I can live up to the, uh, intense, uh, intro you just built me up there for. Uh, so, uh, my name’s Dan Bakowski. I run a consulting firm out of Austin, Texas, the USA, uh, called product Liquidity and focus on helping, uh. High volume CEOs and their teams, uh, with pricing and packaging, uh, how to get into it.

Uh, it’s a, I think like any good career, a set of, uh, accidents, uh, both positive and negative, uh, and, uh, market need, uh, which I think is, uh, how anyone gets into anything that they do. I started, I’ve been in software my entire career. Started off more on the, the builder side of things, uh, in the engineering and product worlds.

And, uh, you know, quickly realized that I. Was much more interested, uh, in how the product we built created value for customers and turned into dollars cents for business more so than the, the code I was, uh, having to, to write in every day. And so, kind of have pursued that path over time and, uh, have spent a lot of time, uh, helping, uh.

Understand what customers need. Building those into, into products from a product leadership perspective, um, was able to get my, my hands dirty in, uh, pricing as an operator, uh, because I ended up having some background from both my MBA as well as, uh, some happy accidents, uh, where I was sort of asked to like help other folks who didn’t know what they were doing.

And they were like, oh, you. You have a business degree, you, you could help us figure this out. You maybe took some pricing courses. Um, and, uh, so, but, uh, for the last, uh, five years, uh, that’s all I’ve done is focus on helping, uh, B2B SaaS CEOs and their teams with pricing and packaging and helping them, you know, get their products into hands of the customers and make a fair slice of value along the way.

Jeremy Balius: I think it’s so critical. It’s, it’s fascinating to be thinking about this, and the way that you’re advising specifically on this, because I believe that there’s just, uh, so many different ways that leadership teams are treating this, and in each business it’s almost reinventing the wheel on how to approach pricing.

And so it’s great that you’re coming in to help streamline and figure out specifically how they’re gonna build a methodology around doing pricing. Right?

Dan Balcauski: Well, I hope so. Uh, you know, folks come to us for a whole bunch of reasons. You know, usually, uh, there’s, you know, a set of different kind of major things going on in their business, whether they are, you know.

Building significant new functionality that could be its own, you know, additional add-on module or own tier or, or potentially even a new product. Potentially they’ve grown to a point where, you know, maybe they had a one size fits all package and all of a sudden realize like, hey, like our uh, single offering fits into four different.

Gartner magic quadrants. Uh, we need to figure out how to split it up in, in a way that makes sense to our customers. Um, you know, could be any number of things where they’re going into, uh, new, uh, market segments. And now the value does not align with the way their, uh, pricing and packaging, uh, works for those new, uh, target customers.

So, uh, a lot of different sort of root causes cause people to knock on the door.

Jeremy Balius: Yeah. Interesting. I think I really would love to. Start with where teams are going wrong. Initially, you just outlined that there’s root causes and that there’s a lot of variance and variables within each of those, but do you see some common denominators in where, I don’t know, decision making is going awry, or where mistakes are being made along the way, and how value packaging and pricing is being approached.

Dan Balcauski: Yeah. Well, I would say first of all, you know, the first problem is that when it comes to especially SaaS pricing, you know, most executives think that what you charge determines your success. In fact, who and how you charge determines your success. So, um, you know, right outta the gate, uh, we. I tell people I do pricing right?

First thing everyone goes to is the number right? Should our prices end in fives or nines, uh, you know, uh, like how, uh, you know, or, or, or any number of those type of issues. And those are interesting and I’m happy to talk about them. Uh, but ultimately they very much pale in comparison to really making.

Intentional decisions around, you know, who we’re selling to, right? Really understanding our customer segments. Um, because, you know, as we might touch on later, like, pricing and value are intensely connected and value is, uh, not a. Objective characteristic of the set of bits, but are a subjective assessment in the minds of your customers.

And so we really need to think from the customer, uh, view first in this exercise, but then also the how we chart. So really thinking through, uh, told people this plenty of times, but you know, if you were a sweater manufacturer and you created a three arm sweater. You all your colleagues would look at you a sc and say, well, that’s, that’s interesting.

But your sweater has three arms. Uh, however, we do this all the time in software where we create the three arm sweater. Uh, but it’s not quite as readily apparent. And so, you know, we, but we don’t realize that we’re doing it. Um, and so understanding, you know, how we’re putting together groups of capabilities, um, how we’re.

Charging for like, as the value and cost that we incur scale, does that match with customer’s expectations? Uh, those elements are, can, are much more impactful ultimately than the number we put on that at the end of all that process. We gotta put a number on it, but, uh, it’s probably surprisingly, maybe the least impactful of what I do.

I would say like I would spend most of my time on what the price tag goes on and little time, what number goes on the price tag.

Jeremy Balius: Oh man, that’s so interesting. Um, of those, of those two scenarios, if we start with the first one around starting with a customer, I assume that there’s a, that there’s an issue where that pricing and value isn’t starting or wrapping itself around the end customer commonly, and therefore.

Do you think, do you think teams or or leaders are, are basing pricing on what they think the value is and what they can charge and putting a number to that as opposed to starting with the end user? I. Where, where are they going awry there.

Dan Balcauski: Yeah. Well, I mean there’s, uh, a lot of, sort of root causes. I think, you know, number one is, I think you hinted at this in your question, sort of this inside out view, uh, relying on assumptions of how you perceive value as the internal team that built the product versus, uh, the taking that customer centric, uh, point of view.

Um, you know, all, especially in B2B software, if you’re, you know, early stage, you usually have, you know, the executive team is probably the strong technical team that, that built the product originally. Right. Uh, and so, you know, you have, uh, a lot of. Uh, blood, sweat, and tears that has gone into, uh, the thing that you’ve created.

Um, and just because a feature took you a long time to build as a development team, I. Doesn’t necessarily matter to your end customers. Right? Like they, uh, you know, they, there might be something that one of you churned out on a, you know, Saturday afternoon, you know, just ’cause you’re bored one day that everyone goes, oh my god, wow, that’s amazing.

And then the thing that, you know, the whole team slaved over for months. Like, people are like, oh, yeah’s, that’s interesting. Whatever. Right? But, uh, that inside out view can really distort, uh, folks thinking, um. Simultaneously, right? There’s, I mean, we often talk about, you know, pricing psychology and, uh, you know, if anyone who’s spent any time, um, in the world of negotiations, you might have heard of a concept called like, you know, anchoring.

So we usually think about that from the customer’s point of view, where you think about like, oh, if my price is X today and I raise it to 1.5 x tomorrow, they’re gonna be upset. Right? So, you know, most people like probably remember the price of gasoline when they first started driving, and that’s like the correct price, right?

I’m sure you asked, we asked our parents, they could quote, they could quote you down to the, you know, the third decimal place, what the price of GA of a gallon of gas was,

Jeremy Balius: right?

Dan Balcauski: Uh, but that anchoring is just as important. Inside of the company. Um, and that’s a surprising thing where folks are, you know, they, they made a decision at one point, Hey, we’re gonna charge X for this.

And look a customer, you know, I’m a pricing expert and even I like, you know, can’t track every piece of software that has public pricing out there. Good chances, a, a new customer comes, knocks on your door. They don’t know what you were charging yesterday, but you know, if you decide to raise prices on existing customers.

You’re like, oh, we, we can’t do that because you’re, you’re internally anchored to that. Uh, right. Um, similarly, you have, uh, you know, almost what I might call the reverse, uh, endowment effect. Uh, endowment effect is this psychological principle where, uh, we ascribe more value to the things that we already own, um, because we own them.

And so we, we just have, it gets this special halo, but also the reverse endowment effect is this. Idea that, especially technical teams, product leaders, engineers, you know what your roadmap is, you know what your Jira bug count reports are, right? You know where all the bodies are buried in terms of your technical architecture and the things that aren’t there yet that you, you’re gonna have any year and you’re so embarrassed about.

And so that also, that acres you to. Devaluing your product in a certain way. Um, so a lot of those things combine to sort of undercut us when we take on this topic,

Jeremy Balius: the endowment effect and the reverse endowment effect. I’m just making sure that I remember this. This is great stuff. Um, within that discussion.

Does that apply to a new go to market as well? Where the endowment, uh, the, the reverse endowment effect is happening as you are building your thing and taking to to market the first time.

Dan Balcauski: Well, there’s a lot of anxiety about new product launches that we could yes. Kind of go down a whole rabbit hole on, on new products.

I think, you know, probably the most common mistake as it pertains to new innovations is, uh, folks are loathed to charge what they think the product’s, you know, worth because they, it’s still immature in its lifecycle. Um, and, you know, there are shades of, you know, gray on this, but you know, it, you know, there’s, there is a quite a accurate adage, which is like, it’s us, you know, there, uh, it’s asymmetric, uh, lower lowering or increasing pricing over time is asymmetric.

It usually ends up being slightly harder to increase prices in the market. Um, and depending how innovative your product is. You may set a reference point, um, to bring this into the real world for folks. Um, one of the most, you know, talked about startups on the planet, and even to say they’re a startup at this point is maybe stretching.

The definition of startup would be company like OpenAI. So OpenAI is dealing with this. So they were the ones who brought us chat, GBT. Mm-hmm. Uh, and when they launched their first paid plan, they said $20 per user per month. So what did you see from Google? From Anthropic? From msra? Everyone, everyone’s paid plan is now $20 per user per month.

So now OpenAI is in this position where they’re like, oh crap. We have now defined the market for these super powerful intelligences as $20. The, the most advanced piece of software ever written is now only $20 per user per month at a time.

Jeremy Balius: Wow. And

Dan Balcauski: then recently, you know, I would say, you know, I’m not sure when this will go live, but.

You know, uh, within the last several months, uh, Sam Altman and OpenAI has released their, uh, pro plan. I hate the naming ’cause it, I think plus is the $20 a month. Another pro plan is $200 a month, and the world went a little crazy, uh, when, when they said $200 a month. But, you know, as the leader in that space.

I think they had, they, they were trying to fight their way out of a box. They’re like, look, we’ve set an anchor in the market at $20. Like, should the right price have been 40? Well, whatever, we can’t move that now. ’cause, because now the rest of the competitive set has said, we’re basically gonna compete head to head with you, uh, on parody.

Uh, and so now they’re, uh, have gone completely up market looking at another segment and another plan. Mm-hmm. So I think this is something that, you know, it’s a lesson that we can all look at for, okay. You’re, you’re releasing this net new thing. If you released it too high, well, you know, pretty quickly, like we, we, we missed, like too high.

Let’s work. Like, let’s get the, give this, you know, if it’s a, a sales led motion or, or a sales assisted motion, we can. Maybe give our sales teams more discount flexibility, right? To find sort of the market price as we sort of, uh, go down. Or maybe we introduce, uh, you know, one way that companies can approach this is, Hey, our list prices, whatever, it’s a hundred dollars.

We’ve got, you know, limited time only for our. You know, early adopter, you know, early adopter special for the first six months were, were, you know, giving, you know, some, some targeted discount to, to find the market, you know, with the idea that, hey, we’re gonna build up maturity, we’re gonna get more market signal over time.

So I think it, you know, we could all hopefully take a lesson from, uh, there, you know, what we’re watching in real time when you maybe. Artificially handicap yourself in the, in the market by, by setting a reference price too low. ’cause it, it can be difficult to sort of change those perceptions, you know, after the fact.

And then just, you know, uh, try to, try to raise that price. [00:18:00] Not impossible, but you wanna think through those decisions carefully.

Jeremy Balius: Do you think the strategy there was to start low and, uh, strategically increase as more value is baked in and they accidentally anchored the industry? Or were they potentially not thinking that far ahead and just monetized and started?

Dan Balcauski: Yeah, I don’t think that they were thinking that far ahead. Okay. Um, and, and I, you know, it’s for anyone you know to, I think we could, uh, if anyone’s gonna paint a strategic point of view, they might be, uh, whitewashing the past a little bit. Uh, because I think chat GBT was the, was the fastest. Consumer adopting product of all time?

Uh, yes. When it was launched,

Jeremy Balius: right? Um,

Dan Balcauski: so I don’t know that anyone thought it would be as wildly successful. I think they were just like, Hey, we got, we, we can charge something. Let’s, let’s see what can happen. Um, you know, they, they find themselves in the position they are now. But I think, you know, kind of, we, we could use that as a, as a learning situation.

Um, I think you are seeing, uh, a lot of, uh, you know, intense competition there. Um, and you know, even with, I think the, I think their, the strategic move on the, uh. Again, the, the pro plan is the $200 a month plan. Um, I think was, uh, I think was well thought through, you know, there’s some debate of whether they actually did any, uh, research behind the scenes.

Uh, Sam Altman came out publicly and said that he just, he just picked that $200 number out of a hat, I would hope, with, you know, tens of billions of dollars in funding that he could afforded some, some professional advice in that domain. Right. Um. Uh, I, I leave it to the listener to determine for their own, uh, sanity whether or not, uh, you know, we should believe taking Beta’s word or not.

But, um, you know, I, you know, there, there is something to be said though for, you know, uh, there are capabilities that we, you could add later. They have their whole API business, which is also, you know, a completely separate, uh, model. So, um, but yeah, it’s an interesting thing to watch out, watch, play out in real time.

Jeremy Balius: It really is. Hey, in the way that you were just providing commentary on the naming conventions in the context of the tiers and the pricing, I’d love to take a step back and get an understanding from you, um, pricing and packaging, whether that’s interchangeable, whether one sits within the other, how, how do you think about packaging in the context of pricing?

Dan Balcauski: Uh, no, I, I appreciate the ability to sort of outline this because it is confusing and, um, I try to be consistent in my terminology, but I, I give, uh, my deepest empathy to anyone who’s trying to understand this from the outside, because even the pricing world has not been, uh, the most consistent about this.

I really break. Packaging in the software, in the B2B [00:21:00] software world into four different components. Um, price metric, your price model. You offer configurations and price fences. So, um, if we were to, for example, let’s, uh, let’s take ourselves outta the world of, uh, B2B software and we’ll take a trip to everyone’s favorite fast food restaurant, McDonald’s.

So, uh, the price metric. Is, you know, what you charge for. So when I go to McDonald’s and I buy a hamburger, I pay per hamburger. So the hamburger in that case is my price metric in B2B software. Maybe it’s, you know, per seat or per API call or per gigabit of data. My price model, this is like how and when payments.

Get exchanged in the system. So, uh, again, going through the, the drive through at McDonald’s, I buy my Big Mac. Uh, that is a perpetual transaction. I, I have the full rights to do whatever I want with that Big Mac. Um, but I do not owe McDonald’s any other recurring, uh, payments down the line. I did just hear, uh, earlier this week, uh, that now the, the buy now pay later folks have got into, uh, financing arrangements for DoorDash.

Uh, so we can. So you can finance your, uh, burrito from Chipotle and, and yeah, downstream. Um, but, uh, but in general it’s a perpetual transaction. But we have other pricing models, right? There’s subscription, uh, there’s, uh, pay as you go, or utility, uh, models. Uh, there’s hybrid versions of those. Uh, then we have our offer configurations.

So these are how sets of. Different capabilities or features are grouped together into a combined offer. And so at McDonald’s we have the concept of value meal. Like they know I want a burger, fries, and a Coke. And so they’re gonna neatly combine that into a offer configuration or sometimes also refer it as a bundle, as one convenient sort of offer.

And we, we have that in spades in different um, ways. In the B2B software world, most common [00:23:00] that we see there is the archetype known as a good, better, best. Uh, where, uh, you have a sort of introductory offer, a mid-tier offer, and a, you know, premium offer, um, that are all, uh, put together. So very similar to what we’re talking about with, uh, OpenAI.

They have, they have a free plan. They have their, uh, plus plan. They have their pro plan, I think they have, have an enterprise, uh, plan as well. And then, uh, maybe even different, uh, sub ones, uh, of those. And then finally we have our, our price fences. So these are, how do I charge two different customers?

Different prices for the same product. And so the way we think about this is usually, uh. Things are fenced, either in terms of identity time or volume. So going back to McDonald’s, I may, uh, I have my small, medium and large Coke. Uh, ultimately if I buy the large Coke, I pay less per ounce for that Coke that I do the small.

So it encourages me to upgrade. Um, so I would be, what we think of as like a volume-based fence. We have the same thing that happens in B2B software. If I’m going shopping for A CRM, for example, I buy, you know, if I buy, uh, 10 seats. Versus I buy a thousand seats of that CRM software. I’m a, I, you know, I’m probably gonna pay less for that thousandth seat than I paid for the 10th seat, you know, in those two scenarios, right?

And so that’s, we have some sort of diminishing price curve, uh, for, you know, and we, we also have that in terms of identity. So maybe I sell, you know, if you’re a commercial entity, I, I sell you at full price. But if you’re an educational institution or a nonprofit, maybe I say, Hey, show us your, your tax forms.

And, you know, if you fall under these, these codes, we’ll we’ll give you, uh, we, we give you a structural discount based upon, you know, the type of business you are. So we see that all the time in, in B2B software as well. So those are the, those are all the elements of packaging that come together, and that’s, those are the decisions that.

If you’re not really aware of it, right? That’s what we talk about, like pricing versus packaging. At the end of that, like we have to make all those decisions of what, what is the shape of this thing that I’m buying and how am I gonna exchange money for it? And like now I price that thing. So yes, I have to put a number on the end of that, of, you know, that, uh, four components of package decisions.

But this is where I was talking about before, of spending much more time around those decisions than, you know, under, than what number goes on the final price tag.

Jeremy Balius: It is so good to get this kind of clarity from you. The, uh, the way that you’re pulling that apart is, is fantastic. To what degree is customer value involved in that discussion as well or that thought process?

Dan Balcauski: Uh, it, it, it’s incredibly tied to, uh, that thought process. Um, so, you know, as I was mentioning before, uh, you know, value is, you know, it’s, it’s not an objective. It’s not something that we, uh, you know, can, can measure like physics, like the, uh, the force of gravity or planks constant, or, you know, the distance between the earth and the, and the sun, right?

Um, it is a subjective, uh, experience, right? So, uh, you know. When we think about pricing, what most folks probably remember, if they remember anything about price from school, is they probably took Econ 1 0 1 and at some point the professor put up supply and demand curves on a graph. Um, and so if you remember the supply and demand curves from Econ 1 0 1, um, you remember that pricing’s relationship to volume now.

Obviously price relates to volume. I just gave you an example. For example, the, the CRM situation where it, where it does relate to volume, but value and pricing relationship to value tends to be much more impactful, um, because we don’t it, it B2B software, it’s an intangible good. The products are complex, the customer situation is complex.

Buyers only have a limited amount of time in order to understand, you know, they probably are really kind of understand their problem, but they don’t understand the solution space. And so we’ve gotta really help them understand how our solution fits in. And so the value is really, value care clarification is really the more significant lever, um, in the B2B software case.

Um, because we need to be able to make these, uh. Our offers differentiate from each other. To help the customer select, we need to be able to help our company be able to, uh, position itself against other solutions in the market. And to do so, we really have to have a deep understanding of, I. What our customer situations is, the outcomes they’re trying to achieve.

And really, when we start talking about the customer’s outcomes, that’s really where we’re getting to the heart of value. Um, so, uh, I, I’ve, we can get much longer into value. I don’t know how, how deep you want to go. Um, there’s a whole, there’s a whole area we can talk to. I spent a lot of time working with companies to try to understand value deeply because, uh, values.

One of these abused terms that, uh, doesn’t, uh, people don’t have a strict definition that they tend to use, uh, or, and when we get into pricing, it becomes very important that we have a crisp understanding of value so that we can build our pricing correctly.

Jeremy Balius: I am ready to go deep on this man. Let’s go a bit deeper.

Alright. Alright. This is, I, I get fired up, right? Because in, in our world, in the go-to market space, it’s about articulating the value and, um, what I’d love to hear you, uh, talk a bit more about is internally within the B2B SaaS company. The perception of value that they are providing and then structuring that across those packages in, uh, least amount of value, better amount of value, most amount of value, uh, uh, potentially, uh, that versus the meaningfully understood value by the end user.

Is there a disconnect sometimes with companies who ascribe value and price against that, that cannot or isn’t meaningfully understood by the buyer?

Dan Balcauski: There’s, there’s a lot you laid out in that arc of a, of, uh, several, I think several questions, uh, in there. Sorry.

Um, so, so here, so, so I heard, I heard a few things. I heard. I, uh, you do, we understand value enough to create, uh. Offer configurations or, or bundles that, uh, map to what customers need. Um, do we have the ability to communicate? Value and then as well do cus like, what is customer’s perception of value or do we even understand what they value?

So, so all all I, I did, did I, did I capture, did I capture those, those three high level points?

Jeremy Balius: You’re, you’re getting me too fired up and I just, I just bolted on a, on a whole bunch of things. Yes, yes. As well as. Uh, and this is probably gonna complicate it too much, but, but this is me getting excited. Does, does, does the end, does the buyer have the ability to understand the value meaningfully?

Hmm. So I guess I, I, I, I guess what I’m unpacking there, and maybe we could focus on that first just for brevity, is, um, I’m thinking of Cindy. Let’s, let me,

Dan Balcauski: yeah, let me, let me, yeah. Jump in. Jump in. The, the, the, the answer to your question is generally no. Um. Uh, you know, we like value, uh, as I was hinting at before, most marketers, most executives cannot use value correctly.

Um, if we cannot use value correctly, the chance that our customers are by accident going to use, be able to articulate the how they understand value correctly is infinitesimally small. Hmm. So, hmm. Let’s quickly give a, a primer on value. Um, so, uh, I stand on the shoulders of giants. I use two major frameworks when I think about value.

The first is, uh, uh, framework of jobs to be done. Big fan of, you know, all the fathers of jobs be done that have, uh, helped, uh, with that as [00:32:00] well as, um, there’s a gentleman named Tom Nagle who wrote a foundational book on pricing strategy. I highly recommend it. It’s very dense, but if you really wanna get into this topic, it’s called the Strategy and Tax Pricing.

I think it’s on like sixth edition. Um, but, and he has this, uh, framework called the value cascade. So jobs to be done. As I mentioned, right, that, uh, we have this idea of use value. Uh, this is what a customer perceives that they could receive from a product. So economists might refer to this as utility, and again, like, uh, this is a subjective assessment, but it’s defined by the customer, not the seller.

Jobs to be done helps us really understand different dimensions of value. Um, one of the things I really like about Jobs, honest is it helps us break down three different. Uh, types of value. ’cause in the B2B world, we tend to only focus on the first one, which is functional value. So functional value would be things like, helps you increase revenue, helps you decrease costs, right?

Decrease operating capital, right? Increase, optionality, decrease risk. Mm-hmm. Super important, very important for the work I do, but it doesn’t end there. Uh, because jobs be done also helps us, remind us that, you know, there’s also, uh, you know, emotional jobs. So these are jobs that help us. The outcome is actually feeling an emotion, like a higher status.

Timex and a Rolex, same exact functional value. Actually the Timex might keep its value, uh, functional value more. Uh, I was reading about Swiss watches the other day and it was like, yeah, you gotta wind them every 72 hours. Or they stopped telling the time by, by Timex. I never do, but like I’m gonna get a lot more looks at the country club for wearing the Swiss watch that I am, the Timex, I’m sure.

Uh, so why would you pay $10,000 for the Swiss watch and only $20 for the Timex? Right? Uh, you’re paying for emotional value, not functional value in that case, but there’s also social value. So we are not, uh, you know, uh, thank the Lord. We are not only, uh. Selfish creatures. But we also do things for the benefit of, uh, our social groups and, uh, society at large.

So these could be, especially if you work for, for example, a nonprofit or the government, uh, where maybe you’re increasing access to education or healthcare or, you know, voting rights, whatever it might be, right? So, so these social, emotional and functional jobs are all contributing to the value that someone may perceive that they get from your product.

However, that overall use value is almost never relevant to a pricing exercise. This is where nagle’s value cascade really is, is I’m gonna overuse the term valuable. He introduces the the next refined version of value, which is exchange value. So this is the. Reference value for like how are, how are you getting the job done today?

Or what is the next best level com competitive alternative versus the differentiated value that your product provides. So utility is mainly relevant to price setting because the market sets the price for undifferentiated value. That’s your reference value. So lemme give you an example. If you were shopping for a car.

You would probably be surprised slash annoyed if the car manufacturer said, Hey, this car gets you from point A to point B, because every car does that. That’s not a differentiated capability. Like, right. Uh, like A to B is like, uh, that’s, that’s un completely undifferentiated. So, so, so the exchange value helps us.

Remember that, you know, this only makes sense in perception or relation to alternatives. So, uh, I’ve used the example like, uh, Elon Musk with all his billions of dollars. He’s trapped on a, uh, desert island, uh, for years. Uh, like, uh, Tom Hanks and Castaway, uh, his, his dollars and cents are, are no good. Uh, friendly ship Captain comes up after all these years, says, oh, hey, like, I’ll give you a ride back to the mainland.

Infinite utility for, for Elon to get off the island, he should be willing to give him all the money in his bank account, plus every money dollar he could beg, borrow, and seal. We’ll, we’ll leave aside the ethics and morality of this situation, uh, for the time being. As they’re coming to a negotiate agreement, ship Captain B comes up.

It’s Elon’s lucky day after years of being no, no ship traffic. It’s two on the same day. Ship Captain B says, Eli, you don’t have to get, you don’t have to mortgage, uh, all your fortune. Uh, I will do it for a cool million dollars. Okay? There’s now a market price. Market price is a million dollars. Now, ship Captain A has a decision.

He can exit the, he can exit the negotiation, or he could say, actually. You know what, like, uh, I’ll do it for 1,000,001, but you could stay in my captain’s quarters and I have a band on board and I’ll cook. I have a chef, so we could cookie di fancy dinners every night. We’ll have an open bar, right? And now they’re competing on the differentiated benefits that the other versus the other person offers, but they have a market price now set.

So very rarely do we get to price based upon only the use value. We are, we are looking at what the differentiated value of the market is. So I’ll stop there. So, so this. Helps sort of us, uh, frame the, the value conversation in a way that allows us to do the tactical work needed for pricing.

Jeremy Balius: It’s a really good analogy to frame that.

Is there in the B2B SaaS world challenge to arrive at meaningful differentiation?

Dan Balcauski: There is. There is. Let me fill in one more dot on the value cascade.

Jeremy Balius: Yeah, go.

Dan Balcauski: So perceived value. So customers make purchase decisions based on what they believe to be true about the value that they receive. Because customers ultimately might be uninformed about relevant alternatives or differentiating benefits, or maybe they just like, ah, I’ll take too much time to go become an expert on this thing.

And so this is where it leaves us as marketers. To influence customer’s perception of value, because it doesn’t matter that we are differentiated. What, what, what this helps us understand is that yes, exchange value could help us do the dollars and cents. We, uh, our machine turns out widgets that 25% faster than the next best competitor with, you know, increase across the quality metrics, blah, blah, blah.

But if a customer doesn’t understand that, or doesn’t believe that, or doesn’t trust us. Then those, those benefits don’t matter. And so we have to be able to, you know, not only understand what that value is, how our customers are judging, whether, how they’re making a, a decision between one product and the next, but then also be able to communicate that and marketers are.

You know, there’s, there’s a bunch of tools in the tool bag that they’ve learned over time. People are busy. [00:39:00] So this is why we have logo gardens, right? Uh, our product is trusted by JP Morgan and Disney and Sony and, you know, Google, right? Uh, because that it’s like, oh, it’s good enough for them. I don’t need to look at all the feature list.

I, I, let’s just buy that one. Right? Or, or, you made our shortlist and all these other ones who don’t have those logos on there. I’m not even gonna, I’m not even gonna talk to, um. Customer testimonials. Is there a customer that looks like me in their customer, uh, carousel on their website that I could look at like, oh, this, this person was a CIO at a mid-size, you know, community bank.

Uh, so that they, if it worked for them, it’ll work for me. Right. Um, and you know, that’s not to say that you get to skip out of the hard work of, of really understanding like how your product is better, but your marketers may. Need to use those shortcuts because we need to appeal to people who don’t have, you know, the time to run all the spreadsheets.

And we know this for as marketers, right? You’re gonna have the customers that, that come in that are, you know, hey, I just talked to three of my friends who also have this job and asked ’em what they use. And that’s how I got my list. And it looks like you guys, you know. Have been around the block for a while, so like, let, let’s, let’s have a conversation versus the, the, probably the person who drags you and your sales team through, you know, the, the, uh, you know, 12 month long, uh, proof of concept and, uh, you know, bake off, uh, to, to check every box, right?

So, so different customers are gonna have different levels of, of certainty and heuristics that they’re gonna bring to bear.

Jeremy Balius: I am picking up on, uh, the, the eliciting of trust. And I think we know the tactics of, Hey, we’re proving to you that we’ve done this for similar people in similar situations, in similar industries, and we’ve taken them on a journey and solved X, Y, Z, Z, and we can do it for you too.

Is there an element of. Uh, not an element. Is the, is the perception of the value or a perception of the job to be done, or perception of the outcome itself influenced by the brand of the SaaS company as well? And how would you approach that or measure it?

Dan Balcauski: Yeah, so, um, brand is interesting. You know, my, I, I think there are two.

Concepts are related to each other, but maybe not well, uh, distinguished as marketers. So, um, I would say brand and positioning are different, but related. Mm-hmm. Um, what has been my experience is that brand tends to be more important in B2C markets and positioning tends to be more important in B2B markets.

Jeremy Balius: Interesting.

Dan Balcauski: It’s not that. Brand is unimportant, but it definitely takes a, a backseat to the positioning. Um, why is that? If you’re the product or brand manager at Proctor and Gamble for Tide, I. You know, you’ve got someone’s attention for all of 10 seconds when they’re standing in the grocery aisle looking at the shelf of laundry detergents, and your job is to spark that emotional connection.

Oh yeah. I remember the thing with the dryer sheets and the whatever, you know, uh, it is like, it means I’m a good parent or a good mother or whatever that I bought, I bought my children tied, whatever the association with is, you know?

Jeremy Balius: Hmm.

Dan Balcauski: You are not seeing many consumers do a line by line comparison of, you know, the, I dunno, the chemical composition or, or, or, or whatever.

You know, it might be like, is one better on grass stains versus, you know, bloodstains versus whatever. Um, in B2B, we tend to focus more on, on, on the positioning because we’re able to have a deeper conversation around the [00:43:00] customers that were for the differentiating. Capabilities that we bring to bear, um, the relevant competitive alternative.

So we’re able to have that, that deeper level of conversation. Um, you know, there you did ask about, you know, are there effects, uh, in, in B2B? So, so one of the ways, you know, we tend to measure something intangible, like you might think of brand as like something intangible, so, right. So it’s like, okay, if, um.

I’m gonna buy, I dunno, we’ll just pick, uh, we’ll go back to, we’ll go to technology. We’ll, same consumer technology. So like, let’s say there’s a Sony television versus an LG television. Like Sony is generally thought of as the better brand. Um, but, you know, given the same specs, uh, how much more, uh. Valuable is the Sony television.

Right. And ’cause I have different associations with that. Um, we can get to those through some quantitative, uh, survey methodologies, like a, like a conjoin discrete choice, uh, analysis to measure those effects. Some of those techniques become, they’re not impossible to apply in B2B scenarios, but they like.

We tend to rely on them less because we’re more focused on the functional, um, aspects of the products. Um, in B2B and the brand is, tends to be less important. I I have been part of those types of studies where somebody is specifically interested in sort of understanding their brand value, like when it comes to dollars and cents.

Uh, but, so I don’t know if that answered your question.

Jeremy Balius: It does. It, it really does. I, I think to, to bring it into life. You know, in, in B2B Tech, you’ve got, you’ve got players in the market that have been around a couple of decades, and you’ve got, you’ve got startups and everything in between. And if we take, for example, a, uh, in, let’s say in the cybersecurity space, just off the top of my head, a multinational, well regarded, well known behemoth.

Brings a email security solution to market with w with enough value that it’s gonna be taken up by its existing customer base and its partners are gonna resell it. But you have an, you have a product developed that has significantly more value and should be significantly higher packaged and priced, and yet they don’t carry the.

Awareness and trust that the multinational does, would that potentially bring them down because they’re not able, while they can articulate the benefits and the value, they can’t compete on brand?

Dan Balcauski: Yeah, in in those scenarios. I mean in, in B2B, what I mean, like, so there’s a couple of different. Concerns? I guess I would, I would say that you’re sort of blending. Okay. So one would be, um, you know, as it pertains to the concept of perceived value, um, you know, customers in any situation when we’re trying to talk to them about value may apply a, what we might term a risk discount.

It’s like, Hey, we can help you, uh, accelerate your revenue growth by 50% year over year. Uh, and we may have all the case studies, et cetera, to back that up. And they may say, well, I’m sure that works for all your other customers, but you have no idea how dysfunctional our organization is. So, uh, we’re gonna, you know, discount your claims by.

You know, by half, just not because of you, we don’t trust you, but because, you know, applied to our, uh, organization and, and how it works, we just don’t think it worked. You could see the same thing happen if maybe you don’t have as much data to prove. Um, but there’s always a way to, you know, uh, we could, we, we could get far off track.

’cause there’s always a way to, um, any strength can also be termed a weakness. Right. Um. If the, the big 800 pound gorilla, you know, uh, CRM space is Salesforce, right? They’re, well, they’re the, yeah. I mean, they’re the enterprise solution. They’re big and bulky and expensive and yeah, you could make it do anything, but you know, no one understands how to use it and it’s, but Right.

It’s gonna be, they’re gonna lock you into long-term contracts, right? Versus, oh, our, our thing is specific for you. Right? So there’s ways to, to always work against your competitors. Competitor’s position, um, you know, but also, uh, take into account that yeah, maybe, uh, you’re gonna get more of a risk discount applied to you if you, if you don’t have the, the track record.

Jeremy Balius: Yeah, that makes a lot of sense to me. Um, I think I wanna cover off one more with you that I think could be really good to get your view on frequency of revisiting pricing strategy. Is there a best practice in your view, or what is driving a, uh, a revisiting of the, or analyzing of your pricing and packaging and how often should it be done?

Dan Balcauski: Yeah, well, I would say, you know, there’s not an absolute, you know, magic number. Um, I would say this is one area where I think where companies do it way too infrequently, um. I would say the, the default mindset is, oh, that’s something we did when the product launched, or five years ago. And yeah, we haven’t looked at it since.

Um, the question in that scenario would be like, has the product evolved since? Has your market evolved since, um. Have you gotten any feedback in five years that that has, uh, maybe caused you to question that? Or are you looking at the signals that are causing you to question that? So those are a couple things I would look at.

So, general Guard guardrails would be, you know, the best in class companies, you know, have this as part of their quarterly, uh, sort of review cycles. I would say probably, if you haven’t looked at it in, uh, two years, it’s, you’re probably due. Um, I think, you know, I think good companies, you know, look at it at least annually, right?

Those are some sort of high level, uh, guard guardrails. Um, but look, I would, I would increase that if the, if the product is evolving very quickly, if the space is evolving very, very quickly, um, the maturity of the product, right? So maybe you launch a product at the beginning of the launch. Maybe you’re looking at a pricing and packaging review monthly, uh, and then you know, it, it gets to a certain level of capability and then maybe you switch that to quarterly and then annually, right?

Um, you know it, are there. Market competitive dynamics, right? You’ve got a new, uh, entry of a competitor or, uh, capability in the, in the marketplace, right? And I think a lot of people are going through that right now. Uh, a lot of incumbents worried about, you know, upstarts who are leveraging AI technologies as sort of ai, uh, first like wondering, okay, what’s, what’s changed, uh, since the last time, uh, we looked at this.

Um, and you know, maybe we’re, maybe we’re okay today and it’s not showing up in our numbers, but like if we. The old Wayne Gretzky quote, like, skate where the puck is going. Let’s look where the puck is going and see, you know, if we’re gonna, if we’re gonna have a rude awakening in, in 6, 12, 18 months from now based upon what we’re seeing develop in the market today.

So, um, I think those are a couple of, you know, some guardrails and then, you know, ways you can sort of encourage you to speed up or, or, uh, maybe, uh, extend that duration of those, of those review cycles. Um. Also related to, you know, you know, assuming you want to do it as fast as possible, ultimately you’re also gonna be, uh, somewhat rate limited by the length of your sales cycles, right?

If you’ve got a very fast, uh, volume and velocity model where, you know, you got a 30 day sales cycle, right? You could put something out, you know, and see sort of a full turn of, uh. You know, buying behavior, uh, to be able to, you know, look at data, hear feedback from, from sales folks, um, et cetera, to be able to, to make a next step.

But if you’ve got a, you know, if you’ve got a, a default, uh, 12 month sales cycle, that’s gonna sort of limit like how fast you could really sort of, uh, take meaningful action.

Jeremy Balius: Dan, this has been so good. I mean, if we’re talking about value, the value I’m taking away from this is so immense. I just think you know the way that you are.

Talking about the four pillars of packaging, the way that you’re talking about, uh, endowment and reverse endowment effect that was meaningful, uh, uh, but in the way that you are, um, bringing about the, um, a strategic approach to ascertaining, um, what actual value is, and the way to structure your pricing strategy against that is deeply meaningful.

Thanks so much for coming on the show today.

Dan Balcauski: Thank you for having me. It’s been fun.