This post is my interview with CEO of SurveyGizmo, Christian Vanek on their pricing strategy.
A few weeks back I wrote about the continuing changes to SurveyGizmo pricing. It turned out they have been A/B testing their pricing for a while and I had slipped through the crack, finding both the offers. Last week I sat down (over phone) with SurveyGizmo CEO, Christian Vanek and their web marketing lead Kipp Chambers for a conversation on their new pricing. Christian happily shared with me the genesis and details of this simplified pricing.
The details are sure to add new dimension to the thinking of most startups that see pricing as simple freemium model or do it as tactical afterthought. Their analytical process, understanding of customer mix and their willingness to go against the conventional wisdom are exceptional traits that need to be commended.
Pricing is lot more than an eye-candy pricing page!
What was their pricing before the change?
Take a look at their previous pricing page. Their pricing options and the pricing page design look not much different from numerous other webapps out there. In fact there are wordpress templates available to show this classic three column design with the “suggested version” highlighted.
One glaring difference is, while most webapps include their free version as one of the three presented, SurveyGizmo showed their free version as a footnote.
Otherwise this is nothing more than a instance of what Hal Varian described as Goldilocks pricing.
What is the change?
Gone are the multiple editions and the pricing page eye candy to nudge customers to a specific edition. There is just one edition with all the features including the advanced features that used to be available only in the higher priced versions. Most importantly, they used to limit the number of responses per month and now they eliminated that limit as well.
In the past they had a cheaper $19 plan even though it was not prominently featured in the pricing page. Now that is gone along with the $159 Enterprise Plan that was prominently featured and highlighted in the middle of the pricing page.
After this pruning, all is left is just one version – no name for it (like the new iPad)- offered at $50 for the first user and a flat fee of $20 per additional user.
Another point to note is there is no non-linear pricing built into the price list. Whether it is 100 additional user of 1 additional user, the price is the same, $20 per additional user.
To discuss this change, the drivers behind it and how they arrived at it, I talked to SurveyGizmo’s Christian Vanek, their CEO, and Kipp Chambers. Here is what they had to say.
Why are you open to sharing this information? Isn’t pricing strategy meant to add to your competitive advantage?
“We have a company policy of no secrets”, said Vanek. He stayed true to this policy even when I later asked him about SurveyGizmo’s future product roadmap. ”Regarding SurveyGizmo’s pricing there is nothing really to be protective about. As soon as the pricing page went up our competitors likely saw it. Or they will know when your article goes up. Even before this, people were copying the pricing plans and the pricing page down to the name of our plans and their feature set. Once they had comparable plans they were competing on price”. Vanek adds he could either spend all his energy protecting ideas or spend his energy on better execution and coming up with newer ideas. The choice is clear to him.
What are the drivers for this major pricing change?
We had our $19 plan, the $49 plan and the $159 plan. We found several key things from our analysis of our customers.
- Very people were opting for the $19 plan. Some of those who chose it for price realized they did not have all the features they needed and were calling us about that. In most cases we ended up enabling the additional features for them. We are not going to tell our customer, ‘you need to pay additional just for that feature’. Some upgraded to higher priced plan just for a brief period to use the advanced features and downgraded right away when their job was done.
- Those who picked the $159 plan were using only 10% of all possible features they get with it. We were taking lot more money from our customers who were not taking full advantage of what they were paying for.
- What if a customer wants only one of the feature offered in higher priced version and that is the only one they want? Why should they pay more just for that? We tried for a time some kind of a la carte pricing but it was not the best of experience for our customers.
- Surprisingly, customer satisfaction was low among those who chose the lowest priced plan and high among those who chose the higher priced plans. You could argue this is because their purchasing decision itself may have something to do with satisfaction rating.
Considering all these we thought, there is really only plan that served customer needs and presenting three options is likely aggravating customer choice by adding to their cognitive costs. So we decided to test this hypothesis.
This is so different from what every other webapp startup is doing.
Presenting three plans, any three plans, at different price points and hoping customer will pick the one they want is shotgun approach to customer segmentation. It came apparent to us to retire the shotgun and get sniper”. (Vanek calls this his Call of Duty metaphor, “almost any business lesson can be learned from Call of Duty”, and adds The Lord of The Rings after my prompting*. )
“I think we are seeing now the end of the freemium model, signing up for free and then trying to up-sell. Our value is in providing both a great product and great service to go with it to customers who need and value our product”.
So you are giving up those customers who are willing to pay $20?
These customers were never ours to begin with. Customers who want free survey or want to pay $10 or $20 a month have always been SurveyMonkey’s customers. We are okay with that. If a customer is happy with a competitor we are okay with that. These were the customers who anyway ended up getting the features from higher priced plan because we did not want to say to them, that is extra.
What about profits lost by eliminating $159 plan?
“This was our fear as well and we discussed this internally. It would seem silly to give up on the higher priced plan. In essence you have to bring in 3 new customers at $50 level for every $159 customer we are giving up by eliminating this plan. We asked internally, can we do this? Happy to say we are doing very well after we moved to single price plan.”
“When we discuss our features with customers showing them how we compare feature for feature with competitors and then show them the price, they ask, ‘okay, why such a low price? What is the catch?’. There is no catch. We don’t have to overcharge for the product.”
About the change process?
“We did lots of A/B testing. We found that customer decision was easier with just one pricing option. In fact when we presented the simplified plan in split testing that charged $50 for first user and $20 for each additional user we found customers were signing up more than one user than they did with three pricing options. We are serving marketing research field, we should be doing our homework before such change. Only after a lengthy testing process and data analysis we decided to go with this change.”
It is acceptable for a pricing geek like myself to say cognitive cost, how is that you are thinking about it?
For this Vanek seems to believe this is common sense. A customer who has to weigh multiple plans, the features it has and the price points suffers significant cognitive cost. “We work with lots of researchers who work on cognitive research and we understand the cost to customer from choice.”
Final words?
By eliminating the three plans and going to a single plan we have narrowed the field. We are targeting only those customers who want and value the advanced features.
*Talking of The Lord of The Rings, Vanek says his super power is he has the voice of Saruman.
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The base model without heart rate monitor costs you $147.35 (at a discount of $52.64). If you want heart rate monitor to go with the black model, it is sold separately for $45, bringing the total to $192.35.
It is the red model with included heart rate monitor, priced at $184.91. That is $7 cheaper than black base model plus heart rate monitor add-on.
The pink model, arguably a choice targeted only at women, is $1.22 more than the red model. But still cheaper than black combo. Nothing prevents men from buying it so the pink model pricing is not at all a gender based price discrimination. But helps to capture additional consumer surplus from women who most likely will buy it. (I am succumbing to stereotype here! Sorry!)
