Dear SaaStr: Is Underpricing a Good Strategy to Gain Traction?
Yes, to some extent — once a category is well established and there is a subset of functionality that is commoditized. But it’s not a marketing strategy. It’s more a tactic to win deals vs. an establish. brand, once you have the prospect in your funnel.
Pricing “cheap” won’t get prospects to come find you, not usually. But it can reduce friction in the sales process. And reducing friction is key to scaling in the early days … and maybe even later.
Brands matter. They matter in B2B and SaaS as much or even more than anywhere. You’re buying a solution to run your livelihood on. What you need is what works, what you can trust. Not what’s $0.60 a month cheaper.
But … then a time comes when a category is very well established, so well established that a subset of the functionality becomes a bit like water. An element of it does become a quasi-commodity.
Now, buyers that look at multiple vendors … a subset will chose the lowest-cost solution that meets their minimum spec. Period.
And, on a related note, as the winners in a category get really big … they tend to go upmarket. And raise pricing further. This creates a constant stream of Room at The Bottom. More on that here:
But in most deals, until the category is very well established and a portion of the functionality is a commodity — lower pricing won’t win you the deal. Brand and Trust will, 9 times out of 10.
So lower pricing can work. But what usually works better is being the dominant brand in a category. And if there’s already a dominant brand or two — think about owning just a piece of the category, and winning that small piece. Instead of simply going low.
More here:
The 3 Types of Day 1 Pricing: Low End of Normal. Identical. And Anchor High. (Updated)
(image from here)
The post Underpricing: It Can Help You Win Deals. But It Won’t Magically Bring Them In The Door On Its Own. appeared first on SaaStr.
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Jason Lemkin, Khareem Sudlow
