As 2022 comes to a close and we begin 2023, a common question I get is, “What pricing trends will we see in the new year?”
I have a hard time answering this. Pricing fundamentals never change. Use VALUE-based pricing to charge what customers are willing to pay, and be comfortable using price segmentation to charge different prices to different customers based on how much VALUE they receive. Those two pricing “rules” will carry us for a long time.
But, once you expand the definition of “pricing” to include VALUE-based business decisions, the trends are easier to discuss. I won’t go into detail on each of these, but here is a quick synopsis of what I believe/predict.
Product-led growth will continue to expand. It isn’t right for every business, but many companies have an opportunity to create or modify their products so users can experience the VALUE and then choose to purchase or upgrade.
Net Dollar Retention (NDR) will become a more important metric for subscriptions. You can read more about NDR in Win Keep Grow, but the gist is that companies often talk about land and expand, but rarely spend resources on the expansion part. NDR increases as expansion revenue grows and that only happens when companies focus on how to deliver and capture more VALUE from their customers.
There will be a continued push into Usage-Based Pricing for subscription companies. Flat rates or per-user pricing has been easy, but it often leaves money on the table. As suppliers learn to correlate customer usage with VALUE and then charge for usage, they will capture more of the value they deliver.
ChatGPT has shown many of us the power of Artificial Intelligence in the spoken word. Many vendors are working on AI-based pricing solutions. This is my least favorite of the trends because I haven’t yet seen AI focused at customer value. It is typically based on historical demand data, probably because that’s the data we have. I would get more excited if we could find or create a dataset based on customer value.
Hopefully, you’ve noticed the common thread. VALUE should drive many or most of your business decisions, so it makes sense that value drives many of the business trends.
What other key trends do you see?
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