How to package, bundle, and price your SaaS offering? (Part 1)
All packaging and bundling decisions begin with segmentation. Segmentation gives you the power to serve customers better by catering to their specific needs. Segmenting in the early stages of your innovation process will help you build products that resonate with customers.
Also, you’ll increase revenue, growth, and profits by serving multiple customer groups, and achieve broader adoption by offering products at multiple price points.
Without market segmentation, you risk treating everyone as the same.
Smart segmentation creates a win-win situation for your company and customers.
- Begin with customer Williness to Pay (WTP) information: WTP is measured on customer needs and value. By clustering individuals according to their WTP, value, and needs data, you will discover your segments — groups of people whose needs, value, and willingness to pay differ.
- Can you easily differentiate your segments?: — . Methods such as cluster analysis will give you many different options on how to segment with similar statistical accuracy. But choosing the most statistically significant outcome might not give you a segment strategy that will work in practice. Pressure-test your findings: Have you defined a customer group to which you can sell? Are there clear “fences” between segments — features one segment strongly wants but others don’t? The acid test is asking a group of salespeople whether they can sort their clients into the segments you’ve come up with.
- Fewer is more. One important segmentation task is to decide on the number of segments. Theoretically, each customer could be one segment, which would make each segment perfectly homogeneous. The opposite extreme would be treating the whole market as one segment. The fewer segments you have, the less homogeneous and distinct they will be; the more segments, the higher the complexity. Do not underestimate the latter. Serving each new segment adds significant complexity for sales, marketing, product and service development, and other functions. Smart companies start with a few segments — three to four — and then expand gradually until they reach the optimal number.
- Don’t try to serve every segment. You’re not obligated to serve every possible customer. The products and services you develop should match your company’s overall financial and commercial goals. A segment must deliver enough customers — and enough money — to make the investment worthwhile. This part of segmentation is called market sizing. Market sizing doesn’t mean simply counting the segment’s customers. It means estimating how many of them you can acquire and keep, and at what prices — separating the attractive segments from those that don’t make business sense.
- Describe the segments so you can address them. Investigate whether each segment has observable criteria for customizing your sales and marketing messages to them. For example, if you find that your high-price segment has a disproportionate number of businesses that operate 24x7 vs. normal business hours, you can better describe your segments in your marketing. This is critical. In writing TV commercials, Internet banner ads, or any other marketing and sales messages, companies must describe their target segments as precisely as possible.
- Include segmentation early in the product development process. To fully monetize your innovations, you need to incorporate segmentation early in the product development process. And you should base that segmentation on customers’ needs, value, and their willingness to pay for a product that delivers that value. If you do, your product development initiative will be off to an excellent start.