Many of the pricing strategies that businesses take for granted today or feel dated were not the norm before 2020.
Let’s look at this article by HBR in 2020: Upgrading your pricing strategy to influence buying behavior.
These are the essential strategies. Frame higher prices as an upgrade or frame benefits in terms of cost or stack discounts.
While industry leaders have known this since the 90s, the public at large has just started to become aware of the subtle pricing cues the industry has set in place to make them buy, and instead of shirking away, people want to see what the tiers have to offer.
Pricing plays a huge part in decision-making, and it’s not because of the cost of the product but the trade-offs required. After all, why does anyone buy but when they have a need? Cross-selling and up-selling require this, too. If the need is not as urgent- why upgrade?
Usually, the answer is: because the price is right (no, not the show).
The trade-off of the price matches the features. And it is this balance that organizations must achieve (btw, this is the tl:dr of the entire blog).
What Is a GTM Pricing Strategy and Why It Matters?
The pricing strategy in GTM is a deliberate choice of positioning your product/service’s cost to better reflect market needs. These market needs are defined by your potential buyers and must reflect their buying habits.
Why does the pricing strategy matter?
People don’t buy because the price is right, they buy because of a desire and need. While B2B buying is logical, buying decisions are based on instinct- a businessperson will trust themselves, the data will just strengthen their case.
The price operates as a data point. When buying and explaining the reason for the buy the price acts as a leverage. A leader can tell their peers “This is their price and here the ROI they can yield us.” A clear comparison that works in the suggesting leader’s favor.
Decision-makers like these are your champions and champions are a core aspect of GTM.
It’s how Slack did it.
Before asking for the price, Slack lets small teams use its app. But once the user knows just how efficient communication through Slack can be- they end up as paying customers. Why? Because their price justifies it.
The pricing strategy in any GTM strategy serves a core purpose: justification.
Why Pricing Is About Trade-Offs, Not Just Cost
The market is full of solutions that look the same. The upgrades they offer are identical, what the tool does is the same, and the distinction between them is negligible.
What remains is the story of the brand and its pricing, often contributing to making the sale.
It’s like a funnel. If the story is good, buyers check the price; if the pricing is optimal, they check the benefits and what it does for them in their context.
In their article, Stoa talks about trade-offs and how each decision has one. It’s a fascinating read for current and aspiring leaders. There’s a particular line that illustrates how professionals think: in trade-offs.
Of course, because neither vendors nor sellers have infinite resources. Money must be mapped, technology must be integrated into existing stacks, and all the hassle of buying a product or service, which includes the scope of failure.
It’s all a web of trade-offs on both sides.
The group of decision-makers has to think about the trade-offs involved before making a decision.
The trade-offs of the buyers that we can think of are:
Market Size
Every organization has a limit to what it can acquire. Let’s look at the TAM of the search engine market, which is estimated to be $185.4 billion in 2024. And around ~80-95% of that market share is held by Google. (which changes depending on whether it’s desktop or mobile)
That’s a lot, but it’s still not 100% because owning any TAM is almost impossible. Even the great AI race, which should have been OpenAI’s, has many competitors.
That’s why decision-makers will think about their SOM first. Will this approach help them capture more of their market or make workflows easier so that it may happen eventually?
And importantly, can they generate enough revenue to integrate your product or service into their stack, and is it worth it?
Tech/Service Integration
One of the most persistent problems with buying and selling any service or product is integration. And it is tough. While many organizations talk about seamless integration, there is a lot of siloed data and tools that make it impossible to do so.
There may be a lot of tools that do integrate seamlessly, but that complexity needs to be managed, and the tool becomes expensive, especially as the prices hit the premium tiers.
But also, if they do need a tool or service like yours, where will they look? At the trade-off #1 and your pricing. Then integration will become secondary. The point would be to choose the best tool based on the safety net it offers.
This is trade-off #2
User Experience
The second is whether the price justifies the user experience. Think of all the cheap alternatives to some tools- everyone uses one in their professional life at some point. These tools are alright at what you want them to do.
But the user experience is not all there. (Of course, there are some exceptions.)
Their customer service may be spotty, or if many users log in, it might start to falter. There’s a host of issues.
Or on the other spectrum, there’s a fantastic tool with everything in place, and the pricing matches that.
That’s trade-off #3.
What is the buyer’s perspective on price?
There are many trade-offs you need to consider in a GTM strategy, but pricing is one that has many strings attached.
The core question will always be: Hey, is this worth it? i.e., worth the hassle, worth the time, worth the effort, and the price decides a lot of that. The buyers want a tool or service that doesn’t add more cost, and if it does, it either returns or multiplies value.
Basic principle; often forgotten.
The price says- This isn’t bad for what it’s worth, or this is too good to pass up, and the price justifies it.
The buyers’ perspective on price will be set by the market you’re addressing. And it goes beyond competitive analysis. When creating or selling a service, organizations undertake complex research to address gaps.
The price must be treated the same way. It must be treated like a gap you’re trying to solve for your core buyers. And the beauty of this approach is that it helps you find the right price.
Popular Pricing Models and How They Fit into the GTM Strategy
- Value-based pricing
- Value based pricing is the speculation of what your product/service should be worth.
- Through research you will identify what the price should be based on number of factors including competition, buyer-problem, market economy, and your product’s role in it.
- Cost-plus pricing
- Essentially, setting the price such that it covers overhead costs.
- For example, if running your organizations costs $100, then your product/service could be priced at $150 to cover the costs. (This is a gross oversimplification.)
- Competitive pricing
- This is the one that even the layman knows. Essentially setting a price in response to direct competition.
- The advantage here is that you can control the narrative and set your price at higher or lower standards than your competitors. I.e., undercutting the competition.
- Penetrative pricing
- This one means you undercut to build your brand. A really good strategy if you have a good product, competitive market and funding.
- For bootstrapped organizations this is a risky move.
- And raising prices immediately could risk alienation of the audience without clear explanation. (Marketing messages could make it apparent that the pricing is only for a limited time.)
- Dynamic pricing and Tiers
- Pricing that changes based on the market and their needs. Tiers fall in dynamic pricing and there is a greater chance of up-selling.
- Premium pricing
- Essentially creating an exclusive club through pricing alone. Take ChatGPT’s $200 tier, which outsold and outperformed the rest of the tiers because how good it was. But premium pricing requires a powerful product or service or the buyers won’t be sold on the idea.
While the pricing models are a great start, they miss three crucial elements: TAM, SAM, and SOM.
Your GTM Pricing Strategy is also about the trade-offs.
Now, let’s talk about you: the vendor.
As buyers, people naturally think about trade-offs, but do they do the same when it comes to selling? If that were so, over-promising wouldn’t be a thing.
The Role of Market Size in your GTM Pricing strategy
Essentially, a lot of businesses get their market sizes confused with TAM, forgetting the other two, which actually drive the business.
Let us explain,
So, 1000$ TAM
Maybe out of that, you take your ICP, which are SMBs in say cybersecurity, that goes to $750
And then you niche down to who you can serve, which are SMBs in cybersecurity with a specialization in Kubernetes, then your SOM is actually $450
So that means you will get the chunk of the 450$ pie, not the $1000 one. This matters a lot- because your market size will determine how you can price your product.
Whether you will have to charge a premium or make it cheap will be decided here, based on how much you need to make per customer.
This is your trade-off #1.
The Role of integration in your GTM Pricing Strategy
Second is integration or complexity. SaaS products like SEMrush usually handle complexity well. And well, since most organizations today are built on the SaaS model, handling complexity is done by the servers.
But this can give rise to complexity on the buyers’ side. Integrating existing tools with yours might create silos, and someone needs to work around that. Either the vendor or the buyer has to make compromises.
And for the vendor, these compromises usually mean removing or adding features, especially knowing what the end user might go through. Often, this part is not spoken about in pricing.
It’s all about influencing the buyer, but what about setting a price that matches overhead and maintenance costs?
Or you can leverage this complexity to build tiers- think, the first tier lets your buyers handle the complexity, or tier 2, and so on, you handle it yourself. Now, there’s a reason to upgrade.
The Role of User Experience in your GTM Pricing Strategy
Okay, for this one, you won’t be able to ask for upgrades. You can’t go – you get better service because you’re paying for it.
That will ruin your pricing structure. But user experience matters, and it matters the most.
Everything hinges on how the end users feel and if the buyers see improvement in their teams’ efficiency. Even if your tool is complex and has a harder learning curve, is it learnable and teachable?
And good design requires investment, especially during GTM. Because the window to launch is usually tight. When your sales teams are displaying the tool or getting the buyer to demo it, is it intuitive enough for what it’s doing?
Investing in UX/UI and CX is costly, and the pricing must evaluate this. If it doesn’t, you may lose your customer or revenue. A business cannot run solely on ARR or MRR if it doesn’t break even. And if investors are involved, this is doubly true when pressure to perform starts mounting up.
The Role of CAC and CLV in GTM Pricing Strategy
Which directly leads to your customers. All trade-offs culminate here- everything your organization does yields a dollar price. From electricity to employees and the tools you use.
Your GTM pricing strategy needs to focus heavily on CAC and its CLV, for each customer, how much are you getting back if you charge $X? If the acquisition costs start mounting up and your pricing can’t catch up, that’s going to be a problem.
That means your solution cannot be so cheap that you can’t run your day-to-day. This is why many tools have premium prices and tiers, because running SaaS, AI, Cybersecurity, Data Management, SEO, etc., is not cheap. And, if it is, there is always a hidden cost that the vendors undertake.
Usually, the ones outlined above.
Pricing plays a vital role in making an organization sustainable.
While there is a lot to consider when setting a price for your product and service, it’s a task that many organizational leaders have to undertake.
Funding is good, but balancing the price helps you utilize the cash flow properly.
This is what it means to scale an organization, and that begins with GTM, not after it.
