Impact Pricing Podcast

Ep195: Service-Led Growth: Why, How and When to Utilize It with Karen Chiang

Karen Chiang is a co-founder and managing partner of Ibbaka, a company that provides software and expertise to enable business growth by optimizing revenue performance through customer value management and talent optimization.

In this episode, Karen talks about service-led growth and its advantages over product-led growth in certain situations. She also tells us when and how to utilize it, along with the concept of collaborating with the customer throughout the journey in order to maintain and maximize the value of your product or services.

Why you have to check out today’s podcast:

  • Learn the fundamentals of service-led growth
  • Discover why service-led growth might be more useful to your business than product-led growth
  • Find out how to maintain and maximize value by keeping in touch with your clients

 

“My piece of advice is for any business to recognize the importance that pricing can play in reaching their growth targets and objectives and making sure that they recognize that pricing has to be rooted in value.”

– Karen Chiang

 

Topics Covered:

01:12 – How Karen got into pricing

01:53 – What is service-led growth?

04:09 – Product-led growth vs. service-led growth: Which one to use, and when

14:47 – Is service-led growth functional in industries other than consulting?

18:26 – How knowing the insights of your customers helps in increasing the value for your product

21:02 – The concept of customer journey in service-led growth

23:52 – The difference between product-led growth and service-led growth

26:54 – Karen’s pricing advice

28:24 – Connect with Karen Chiang

 

Key Takeaways: 

“The reality is that not all customers are looking for product-led solutions.” – Karen Chiang

“If you are working with customers which are trying to solve complex problems, which require a more collaborative approach, then you are not in the business of product-led growth or you shouldn’t choose product-led growth as your strategy. In fact, you should be looking at service-led growth.” – Karen Chiang

“Pricing is very linked, very much linked to the value that your customer cares about.” – Karen Chiang

“With service-led growth, you are not just thinking about the term of the platform once a year. You are, by nature, collaborating with your customer throughout the journey.” – Karen Chiang

 

People / Resources Mentioned:

Connect with Karen Chiang:

Connect with Mark Stiving:   

 

Full Interview Transcript

(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)

Karen Chiang

My piece of advice is for any business to recognize the importance that pricing can play in reaching their growth targets and objectives and making sure that they recognize that pricing has to be rooted in value.

Mark Stiving

Welcome to Impact Pricing, the podcast where we discuss pricing value and the essential relationship between them. I’m Mark’s diving on our guest today is Karen Chiang. And here are three things you want to know about Karen before we start: She is co-founder and managing partner of Ibbaka and I never know if I say that right or not, so she’ll correct me in a second. She was an I.T., consulting for several years, and she was once tricked into flying a Cessna where I had to pay money to learn to fly. Welcome, Karen.

Karen Chiang

Really happy to be here, Mark. Thanks for having me.

Mark Stiving

Oh, it’s going to be fun. How did you get into pricing?

Karen Chiang

I was tricked into pricing as well because I have had a long-term career following Steven in various endeavors. And so, we had a startup which actually focused on skills and competencies. But then of course, because of Steven’s expertise in pricing, we actually spun up another company which has been extremely more successful. And so, we’ve been doing that for the last several years.

Mark Stiving

Nice. And by Steven, for the audience, you’re talking about Steven Forth, who’s been a guest on the podcast at least once, probably more than once.

Karen Chiang

I think so, that’s correct. Steven Forth.

Mark Stiving

Nice. Well, today we’re going to talk about this thing called “service-led growth”, And to be honest, before you said it, I’d never heard the words before. So, what does service led growth mean?

Karen Chiang

Right. As you know, Mark, there are different growth strategies or tactics that people will consider in their business model. So maybe what I’ll do is before I talk about service-led growth, I’ll give the examples of other growth strategies which people are familiar with. So, one of them is sales growth strategy. And that’s really when you’re really dependent on your sales team and you’re marketing to really drive growth and revenue. And really it is much so about just winning the deal and getting the sale.

Mark Stiving

It seems to me, Karen, that sales and marketing driven growth is really the way traditional businesses always operated in the past.

Karen Chiang

That’s correct. And I would actually argue that sales-driven growth is usually part and parcel of a combination, right? So, even if you are – and I’ll talk about product growth in a moment – but even for a service-led growth strategy, you can’t necessarily ignore the impact that your sales and marketing will have and in fact, even for product-led growth. So of course, I think the more common and buzz word or when we think about growth right now is product-led growth. And I’m really, I guess I say caution organization because I know that there is a lot of pressure to convert or think of your firm or especially if you’re a technology company, is to think of yourself as a product-led growth company. And a product-like growth company is one where you’re really relying on the product itself to drive growth and revenue. So essentially, your products have to be the vehicle through which it sells. The product sells by itself. It’s very low touch. You need to create a really exceptional user experience in order for people to recognize value through the product alone.

Mark Stiving

It’s kind of funny that in the world of product-led growth, we typically think of that as we’re going to put out a freemium or free type product so that we get a lot of people to adopt it and use it, and then they’re going to upgrade into our paid products and especially as more and more people inside a company in a B2B world use it. And so, we start to think of some really successful product led-growth companies like Slack would be the ultimate example of this. But what I find so funny is we hear things like product-led growth. And then, as you pointed out, it feels like every single company says, “Oh, we have to go do product led growth now.” That feels to me that product-led growth is an amazing strategy for some products, right? For some situations. And it isn’t just all “Let’s go throw away everything else we’ve ever learned and go do this.” It’s really “Let’s think about it. But does it fit our industry or our business?”

Karen Chiang

Exactly. And it’s not only “does it fit your industry or your business?”. But “Is it really fitting the customer set that you’re targeting?” Right. And so, you asked me about the relationship between value and price. Well, let’s face it, value is really in the eyes of your customer, right? It is their perception. And how is it that they are really driving value? So then, yes, absolutely. Product-led growth does have successes. And I think part of this is the challenge because when we think about what the private equity firms are looking at, venture capitalists and investors, I mean, we’ve got investors as well. And so, it is about trying to get to that predictable revenue stream. And frankly, the metrics are around lifetime customer value and repeatable revenue. And so, there’s this almost automatic switch to think, “Okay, if I can really look at my monthly recurring revenue or any recurring revenue and tie it strictly more so to the platform and technology, then people think ‘Okay, that’s how you’re winning’”. But the reality is that not all customers are looking for product-led solutions. I mean, of course we buy as businesses and we primarily deal with B2B. But businesses will use a number of different types of solutions, right? Certainly, they’re going to use products like Slack, right? They’re going to also use more in-house, complex solution offerings. And so, for service-led growth, its different. This is where I think if you are working with customers which are trying to solve complex problems, which require a more collaborative approach, then you are not in the business of product-led growth or you shouldn’t choose product-led growth as your strategy. In fact, you should be looking at service-led growth. And service-led growth is one that combines subject matter expertise, which is could be tied to consulting professional services. But really, it’s the insights that we bring to bear. And then on top of that, the other piece of service led growth, which I think is important, is that we are so dependent nowadays on insight and data, right? So, the insights and data as a result of\ the consulting, the professional services, but also the technology platform that you are using to collect and monitor and track the efficacy. So, again, I may be biased because, for Ibbaka, and yes, I’ve heard it pronounced “Ibeka”, “Ibaka”. We just pronounce that either which way, as long as they know what we do and they can find us. But essentially for Ibbaka ourselves, we also have a service-led growth mindset for our business because pricing in our mind is complex, but we want to make it easy. And the way that we make it easy is to systematize some of our learnings through the platform that we have, but also through the insights and know-how and methodology that our team brought to bear.

Mark Stiving

So, the implication behind product-led growth is that: “I’m giving you a product or a version of my product for free. You can try it. You can see that it adds value to your world and now you want more of it.” In service-led growth. Is that the same thing? Are you giving away part of your services for free? And then people say, “Oh, I love you, I want more”?

Karen Chiang

There’s two thoughts that come to mind in your comments, Mark. So, I’m going to separate the two thoughts that come to mind. The first thought was around the freemium model for product-led growth. I do have comments on that. And then the second one was, “Oh, is there is there something around pricing for service-led growth that also predicates a need for freemium or some form of incentive?” Because I have customers who don’t necessarily like the word freemium and discounting, so they think I’m making negotiators an incentive. I just want to be mindful of those people who might be listening to them. So first off, from a product-led growth strategy and we think about the pricing tiers, yes, it is very common to sort of have that tiered pricing or freemium. And then to grow the trajectory and lead your customer in terms of maturity. And then that’s where you think about your what they call the “viral loop” in terms of the “viral loop” happening within the product itself right? So, you start off with value being delivered, and there’s a negotiation around price for that value. And so certainly, yes, I would say many product-led growth companies starts with that lower tier of freemium. But then I think that – again, I’ve always cautioned customers against starting off with the freemium. – Again, it’s more a circumstance of your business, right? But then I think what is very common is the “good, better, best” model for product-led growth, where you have the starting ground of “What is foundational?”, “What value can I provide to you through the product?” And “Hey, let’s have a price point”, right? And I think and again, because the product has to sell by itself, then usually there is that sort of freemium of, “Hey, we’ll give you a free trial for X amount of time, but it’s gated”, right? In order for you to get more dependent on the use of our platform. We know that “Hey, if we give you a timeframe of one month, two months, three months, we should be able to convert you to a paying customer, at least getting you onto our good platform”. So, I think that again, is the strategy around how you want to package and quantify the value that you’re giving to then deliver to then come up with your price. So then, from a service-led growth model, again, I think it is dependent on the business objectives that you’re trying to achieve here. In one of our previous circumstances, we were working with an organization which is, again – this is a very common circumstance – where your traditional business was based on an engineering grounding, purely service-led, but then what they wanted to do was they recognized that they can only do so much in terms of the peer consulting point. But then what had happened was through their consulting and working with their customers, they were able to build a tool for their own usage to help with the delivery of their consulting. But then they realized that, “Hey, they can actually make this tool available to their customers”. And so, they then began to think about “Hey, how should we price for this software application platform that can really help build the synergy around the overall value that they were trying to get to in terms of outcome?” So, in that case, because they really wanted to promote the value of the platform as well as the platform itself was seen as essentially future points of predictive revenue, in that case, they were willing to provide incentive off their consulting services in favor of the platform itself. So again, it is somewhat dependent on the circumstance. And what is the overall business objective that you’re trying to reach in terms of your overall strategy?

Advertisement

Some companies pay $1,000 per hour to talk with me privately about their pricing issues, and yes, they get their money’s worth. Implementing just one suggestion can yield incremental profit much, much larger than that small investment. However, some companies have found a way to hack my business. They join INSIDERS for just $100 per month. Sure, that gives them access to all of our courses, but many use it just to come to Office Hours. During that time, I answer all sorts of pricing questions. I’ve reviewed upcoming price increases. I’ve helped price new products. I even helped one INSIDER prep for a job interview for a director of pricing, and yes, she got the job. Sometimes, only one person comes to Office Hours and it’s like they got the value of $1,000 one on one private session. So, if you want to take advantage of me, and in this case, I don’t mind, become an INSIDER. Go to insider.impactpricing.com.

Mark Stiving

So, I think I’ve heard of other consulting firms doing something similar to this. I’ve never heard of it as service-led growth, but I have heard of consulting firms who have created tools, and then after they’ve left, they left the tool behind and charged for the use of the tool. And so, that feels like what you’re talking about. Never heard the name. Does service-led growth mean – Is it usable or the concept functional in industries other than consulting?

Karen Chiang

Before I answer that question, Mark, I wanted to address that last comment about you’ve seen consulting firms do this where they’ll consult, then they’ll leave the tool and then they’ll have the revenues. But they’re not really thinking about the consulting. So, my argument here is when we think about service-led growth, it is actually a cycle and the viral loop is actually within the cycle of consulting, technology, data, and insights. You have all three informing each other, right? So really from our perspective, we would have failed if you are only driving revenue from only one of those buckets. So really, you should be driving the revenue and growth from not only the consulting piece which will inform the platform and the platform itself informs the consulting. But then the data and insights are being collected over time, which will then improve the consulting and the knowledge that you can bring through the subject matter expertise. But then, it’s a continuous loop or they’re all three aspects feed on each other and rely on each other. So that’s one. But to get back to your question then in terms of are there other organizations aside from the consulting professional services where we see this, I would also say that another example is if you are a mature software organization where again, you are looking to rejuvenate traditional ways of doing things, you may want to consider: Are there enhancements that can be made through the knowledge and insight derived from the use of your application to then look at the professional services consulting side of it? And so, you see organizations where again, this is where I think in certain software firms, they have chosen the path of channel, right? Where they have got the value-added reseller who is deriving a revenue source not only from the resale of their software, but obviously they are providing some expertise, some services, some consulting around that software place. And I can see where an organization is really wanting to build that infinite loop to really standardize and enforce how to see the value not only of its software, but then also the associated services. And those services can be done in-house or they can be done through their partner network.

Mark Stiving

Yeah, that’s actually really interesting because being pricing people, I’m used to pricing systems. You probably are too, and you could see how that would work really well if I as a pricing company – pick a name then DAVO Pros – somebody like that was looking at the outputs of my clients’ decisions, we could probably give them good advice on how to change pricing and what to fix so that they make even more money just because we can get the insights. And it’s that’s because we’ve worked with many customers, not just the one customer.

Karen Chiang

That’s right. So, then I think, you and I see the essential relationship between value and price. But then, the other part of that is it really does start from the customer. And of course, when we think about growth strategies – and this is why marketing is always important – is we are always trying to find the patterns of ideal customer type. Who are the segments that we should really be prioritizing. So really, a big part of what we think about and do is the value segmentation. How are your groups of customers prospects finding value in the same way, and how do we communicate and deliver value to that similar group of people and customers? And so, for Ibbaka, when we build a value, it is all a part about understanding this insight across your group of customers to see “Okay, which are the value points that are really resonating? How can we effectively quantify those value points that we’re making an impact on so that the pricing conversation no longer becomes a battle?” It’s because the pricing then is very linked, very much linked to the value that your customer cares about. There is an understanding that for this investment, they are getting this mapped relationship to the value and so it makes sales and the collaboration with your customer a lot easier. And so, when we think about the overall value to customer being able to understand that not only at the beginning of the sales process, but to understand it throughout the customer journey becomes extremely critical.

Mark Stiving

Right. And when you say “the customer journey”, are you going beyond the buyer’s journey? And you’re talking about after they’ve bought it, as they use it, as they get value, we continue to monitor and quantify their value afterwards.

Karen Chiang

That’s correct. Right. And so that’s another advantage of service-led growth, right. Because with service-led growth, you are not just thinking about the term of the platform once a year. You are, by nature, collaborating with your customer throughout the journey. So, it’s not just the sales cycle, but it’s as you are delivering your insights either through the reports, or as you’re delivering insights through your consulting subject matter expertise, you are delivering value across the value chain. I use products, right? I’m a slack user. At one point, we’ve got project management tools. But you know, what was really interesting is that I would not get a call from some of those product companies at all. I mean, Slack I can look at the statistics. They know that we’re using it. They have no worry that I’m going renew. Right. And then what is interesting was that for some of my other products, I wasn’t necessarily getting regular touch points from them. I’m not sure what sort of data they were collecting. But I can tell you, three months before my contract is up, they’ll give me a call. And then actually, I would say to you that it’s actually a give or take whether I’m actually going to renew. And they’ve left it so long that in certain instances where I did not renew it, I said to them “This shouldn’t be surprise to you because hey, not getting the value out of the usage. So, this is again, product-led, better understand your usage. But you know, I said “Yeah, you lost me. And in fact, one quarter before my renewal date for you to touch base with me to check how things are going, it’s probably not enough for you.” So, again, it’s like, you know, you’re running a product-led company versus a service-led, very different mindset. And this is why for those firms which think that they can easily convert to product-led strategy from growth because of pressures from private equity or investors, you ought to be very clear in terms of how you need to swap out your team capabilities and skill. And how are you going to readdress your marketing and your messaging and everything else.

Mark Stiving

Okay, I want to try to summarize my misunderstanding and then hopefully I now understand. I have always thought of product-led growth as “How do I win a new customer and grow them through their lifetime with me as a company?” And I want to do that with as little sales effort as I possibly can, so I do that by creating the right products. Service-led growth is not. That service-led growth is, I may already have a customer, but how can I add service on top of that to not just sell more services but to grow the overall relationship and sell even more product because we’re leading the growth phase with service. Would that be accurate?

Karen Chiang

Yes, that’s accurate. It’s very much a relationship between those two. And Mark, you actually got it right. It’s just I was just being that picky.

Mark Stiving

I actually love this because I hadn’t thought of it that much. And like everything, this applies to some companies and not on other companies. And so, does it make sense for you as a company if you’ve got a product, especially a software product that’s gathering a ton of data or doing some functions that could gather a bunch of data, could you glean insights that your customer can’t, and then turn around and offer that back as a service or offer more consulting services or even increase the product because of what they’re doing and help them make more money? So, the more value we can deliver to our clients, the more we can make because we’re delivering value.

Karen Chiang

That’s right. And again, it’s really what your customers find the value is, and how they want to choose to interact. Or what makes sense for that interaction with you. So again, that’s why I go back to “Okay, is it a complex thing? Is it a complex solution that you’re offering or is it a complex problem that you’re solving which cannot necessarily be done through software low touch alone?” Because I think that’s the first question you have to ask yourself. Because if it is something that can be done low touch through software alone, then yeah, the insights can be given in the form of certain back ground analysis through your platform and then give a report. But if, if it requires a bit more hand-holding, more touchpoint, more dialog, then that’s where you really should be considering more of a service-led approach where the human factor matters more.

Mark Stiving

Yeah. Beautiful, beautiful, Karen. Believe it or not, we have gone so long that I am not going to do pricing table topics with you.

Karen Chiang

Really?

Mark Stiving

Don’t cheer too much. But I am going to ask you the final question before we quit. What’s the one piece of pricing advice you would give our listeners that you think could have a big impact on their business?

Karen Chiang

The one pricing advice I would give and this is why I think aside from listening to Mark’s podcasts and reading is –

Mark Stiving

Oh, you could stop there. Thank you.

Karen Chiang

I think this is very exciting times for us as pricing professionals. And so, one of my clients has said to me; “Karen, I recognize that there’s all of these things that have to happen on an operational level. But really, pricing, we’ve got to change the mindset that pricing is not an afterthought. It is very much a strategic decision that should be taken much more seriously. And pricing is actually one of those things that combines a lot of different assumptions.” And I think my piece of advice is for any business to recognize the importance that pricing can play in reaching their growth targets and objectives and making sure that they recognize that pricing has to be rooted in value.

Mark Stiving

Nice. I think there were two or three pieces of advice there, so I love the last one. Pricing has to be rooted in value. But I also love the fact that it’s not an afterthought. It’s actually part of your business. It’s part of your business model and your business plan. So, awesome. Karen, thank you so much for your time today. If anybody wants to contact you, how can they do that?

Karen Chiang

They can reach me at karen@ibbaka.com.

Mark Stiving

And we will have Ibbaka spelled in the show notes so everybody can figure that out.

And episode 195 is all done. Thank you so much for listening. If you enjoyed this, would you please leave us a rating and a review? You could do that at ratethispodcast.com/impactpricing. I still don’t know why it’s so hard to figure out how to rate a podcast, but if you go to ratethispodcast.com/impactpricing, they will hold your hand while you do it. And finally, if you have any questions or comments about this podcast or pricing in general, feel free to email me at mark@impactpricing.com.

Now, go make an impact.

 

Tags: Accelerate Your Subscription Business, ask a pricing expert, pricing metrics, pricing strategy

Related Podcasts