While important, normalizing for pricing model differences is only half of the equation — you also need to consider normalizing the product comparisons you are making
July 2022
Author: Bryan Belanger
Everybody’s different
In a recent post, we shared our recommendations on how to normalize for differences when comparing pricing against competitors. We also reiterated why we believe competitive pricing analysis is important; we won’t till that earth again here, but trust us, it’s important!
However, while important, normalizing for pricing model differences is only half of the equation. You also need to consider normalizing the product comparisons you are making.
SaaS products, including those in the most crowded and commoditizing categories, have some differences. Not as many differences as the typical SaaS comparison page would suggest, but differences nonetheless. These differ—ences are compounded by both fundamental and granular differences that can make direct product-versus-product comparisons challenging.
At a fundamental level, for example, two competing SaaS products may package their offering into a different number of tiers. One company may only offer three tiers, while its competitor offers seven. This creates roadblocks to crafting a perfect like-for-like comparison across all product plans and further suggests fundamental differences in customer targeting that may impact the competitive comparison.
At a more granular level, the depth, breadth and/or quality of features could impact comparisons.
Normalizing apples-and-oranges product comparisons
Obviously, before creating a competitive price comparison you must establish a viable competitive product comparison. The best anchor point for a product comparison is your own company’s products. After all, you are trying to normalize a competitor’s approach in order to compare it to what your company sells. As such, your first determination is what product and what tier(s) of that product you are seeking to compare to your competitors.
The next step is determining which competitors you are going to compare in your analysis. There’s a lot of nuance to that decision, and you’re struggling with that question, check out this post first, and then return here to go deeper. For the purposes of this post, we are going to assume that you’ve selected a competitor to compare and determined that competitor to be a viable and direct comparison to the product you’re seeking to analyze.
Once you’ve made that determination, the next step is to create an objective, outside-in product taxonomy that compares your product and product tier to those of your competitor. Basically, you’re just creating the objective version of the SaaS comparison tables that are published on marketing sites. The granularity of this analysis will depend on multiple variables, including the time and resources you have for the comparison and what purpose it will serve. As usual with competitive analysis, the more granular you can go, the better.
Essentially, this amounts to taking the full list of features and usage conditions (e.g., up to 100MB of storage) associated with your product and the tier of that product, and indexing whether your competitor offers that feature and/or usage condition.
If you’re like me, you might prefer to use Excel or PowerPoint for this comparison. Others may be more adept at using something like Airtable or Notion. Unless you are certain about which tier of your competitor’s product to compare, you may want to conduct this exercise across all of your competitor’s product tiers. That may help narrow your options to allow you to choose the appropriate tier for the competitive comparison.
The result of this exercise will yield a long and exhaustive checklist comparison of your product (for the chosen product tier) versus the appropriate competitive product and tier. There will be some areas where your product and your competitor’s product have the same features and/or usage, others where your product has gaps, areas where your competitor’s product has gaps, and maybe even areas where both of your products have gaps. Again, this will look a lot like a comparison page you might have on your website, but with more detail and objectivity than your average comparison page.
Normalizing pricing for apples-and-oranges products
Once the above is complete, you’ve generated a complete picture of the products and tiers you are comparing, as well as how those products compare at a fairly fine-grained level. The next challenge is figuring out how to translate that output into a pricing comparison.
For this, you have a couple options, each of which we’ll break down in greater detail:
- Stop there
- Normalization (Competitor, Market, Internal, Hybrid)
Stop there
Based on your use case for the pricing comparison, it often may be good enough to stop after creating the underlying product comparison. Let’s say that you identified that your Product XYZ – Tier A compares to Competitor Product ABC – Tier A. You can then assume that any potential or current customer of your Product XYZ – Tier A would be selecting against the alternative of Competitor Product ABC – Tier A. That customer would pay either the price for your product at their required quantity or the price for your competitor’s product. This data can be used to create pricing comparisons based on the closest likely competitive tradeoff. If you’re using this model, you’ll still want to normalize for any differences in pricing models and/or packaging that may skew the pricing comparison.
Our recommended approaches on how to do that are detailed here. This type of approach probably suffices for things like pricing calculators and/or for infusing into sales battle cards. Even if you choose to go deeper, as outlined in the next section below, you’ll still likely want to conduct a basic, top-level pricing comparison with your competition.
Normalization
You often may need to go deeper with your pricing comparison. Why? There are soft and/or hidden costs associated with these types of comparisons that can greatly impact the total cost associated with your product versus a competitor’s closest comparable product. If you can identify, quantify and magnify these differences with a rigorous, research-backed approach, they can be invaluable messaging points for your product versus your peer’s.
For example, let’s say that for a given product you include 24×7 support and upgrades. Let’s assume that your competitor offers only a lower level of support to customers, and then upcharges for premium support at a price of 10% of the customer’s monthly recurring software spend. That’s a demonstrable difference in customer value (and cost) that should be considered in a pricing comparison. That comparison could be used to help with sales’ price positioning and/or as part of a broader pricing strategy exercise.
With normalization, your goal is to identify these differences, and then use one or more sources to quantify the differences if and where applicable. The place to start is the detailed product comparison table you produce as your first step of analysis. You’ll want to conduct a mini-analysis of each area on that table where there’s a comparative gap — meaning a feature or usage condition that either your product or your competitor’s product is missing. The end goal is to identify what the price or cost impact is to the customer for choosing the competitor’s product versus your product so that it can be factored into pricing comparisons.
Once you’ve identified this sub-list of features to explore, you have a few options for collecting the data you require for a price comparison. The first and best resource is to find data that is directly related to your competitor.
This step involves assessing your competitor’s pricing page and related pricing content for indicators of price differences for certain features. Your first goal is to understand if your competitor charges for those features or whether they are a true gap. Often, a competitor may offer those gapped features as add-on products or via services. In other scenarios, they may not address the feature at all.
To do this phase of normalization, start with your competitor’s website. Often, vendors will post pricing for add-ons directly on the pricing page, embedded in the FAQ section or in other product documentation. After exploring that angle, turn to sources of customer insight. Customers that have worked with your competitor may have also posted about add-ons or additional costs on social media or a software review site. You may even have those insights internally from customers that have migrated to your product from the competitor.
Exhaust your resources to see if you can find information on if and how your competitor charges for those feature gaps. If you’re struggling with where to look, check out our list of good places to scrape for competitive pricing insights.
If you’re successful in finding and quantifying how your competitor charges for those product gap areas, you can likely stop there and complete your analysis. But often, you may run into one of two scenarios:
- You can’t find any evidence of whether your competitor charges for those features
- You know definitively that your competitor doesn’t charge for those features.
If you find yourself in scenario No. 1, your next objective is to turn to deeper research. If your competitor charges for those gapped features in some form, you want to anchor your analysis in that view. Consider using primary research, mining more internal data sources and/or partnering with a competitive analysis vendor to help explore the comparison in greater detail. If you exhaust these avenues and cannot find competitive pricing data, you can also use the approaches described in the rest of this section to estimate competitive pricing for those gapped features.
If you find yourself in scenario No. 2, you have an opportunity to expand on your analysis with market and/or internal data normalization. The goal of this type of effort is to quantify the value and cost impact to the customer of choosing the competitive solution with the feature gap. For example, let’s say that your product costs $500 per month and your competitor’s product costs $100 per month for the closest equivalent. However, your competitor has three features that they don’t offer in that closest equivalent product.
With this type of normalization, your goal is to quantify not only the base price of the competitive product ($100 per month in the previous example) but also the costs of those feature gaps, assuming the customer values those features as part of the solution (more on that in the last section).
For example, let’s say your product offers single-sign-on (SSO) as part of the core product, included in your monthly or annual recurring pricing, and your competitor does not. Your goal is to establish a representative estimate that says the value of SSO as a feature is $X, such that you can account for that in the comparison of pricing to your competitor.
The types of market and/or internal data sources used in this analysis can vary widely. For the types of normalized feature gap price comparisons we’ve discussed in this post, we recommend considering the following general categories of analysis:
- Relative pricing comparisons: Use your internal and/or other market data to determine how much a particular feature impacts price. You could do this by analyzing the relative pricing of different tiers of various products in your space to assess how features impact price. Let’s say you are analyzing a feature gap for “admin controls.” Looking at pricing and packaging in your category or for your own product, if a preceding tier of a product is priced at $100, and the next tier, which adds admin controls, is priced at $250, you can assign some level of isolated value to that feature. You can then apply those assumptions to the intrinsic hidden costs of your competitor. This type of relative feature analysis can be effectively executed with primary research methods as well.
- Multiproduct comparisons: Another consideration to evaluate is whether a customer selecting your product versus your competitor’s product would have to source a separate SaaS product altogether to achieve equivalent features. Perhaps your product offers project management and CRM capabilities, whereas a competitor offers only CRM. To compare to your product, customers of the competitor most frequently also purchase a project management SaaS. Here, the first goal of research would be to understand the common product stacks of your competitor’s customers, using a tool such as the BuiltWith.com technology lookup, customer review sites, social media and/or primary research. Then you’d factor the cost of that additional software into your comparison.
- Market or internal benchmarks: In most scenarios, market and internal benchmarking data can be applied to achieve a comparison. This can be sourced through internal data on your product, secondary searched market data and/or primary research. The goal here is to collect a generally representative estimate of pricing, value or cost that can be used as a proxy in a comparison. This is a broad category that could vary based on exactly what you’re looking to quantify, but the goal is the same: assign a quantitative value to the feature gap for the purposes of comparison.
Stay focused on customer value
The above is purposefully built to help engineer detailed competitive comparisons. But it’s important in this exercise to not lose sight of the most important aspect — customer value.
It’s easy to get caught in the trap of conducting an overly granular competitive assessment, where your calculations determine that there’s an intrinsic savings of thousands of dollars for your product versus your competitor, based on the gaps in that competitor’s product. That may be objectively true, and your methods will undoubtedly be sound. But it may not matter if customers don’t care about the features your competitor lacks.
This is where we can’t emphasize enough that you should do your own continuous customer research. If you’re doing customer research on pricing, one of the things you should be researching is relative preference of features in your product, as that informs customer perception of value, and thus willingness to pay.
If you have that research and have data and insights into your paying customers, you will understand which features have value for which customers. This insight can inform the type of analysis we outlined in today’s post and help save you a lot of time by focusing competitive comparisons only on features that matter to value. If a feature that your customers value is not offered by your competitor, that’s a signal to dig in more and quantify the price impact of that feature gap, and then use that to your advantage in positioning.
This is complex stuff, so in our next post we’re going to illustrate everything we talked about here with a tactical example. Subscribe today to automatically receive that post once it’s published. And if you have any questions or there’s something you’d like to see covered in a future post, contact me at [email protected].
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