Linear #006: Outlier Talent, the Story of Toast, & 13 Psycology-backed Pricing Strategies
One business story, one how-to, and one vertical SaaS breakdown. In your inbox once a week.
Happy Sunday folks! Another episode of the linear newsletter here.
One ‘How To’:
How To Identify OUTLIER Talent
One Biz Story:
The Story of Toast: From a Bar in Boston to a $13B Company
One Vertical SaaS Breakdown:
13 Psychology Backed Pricing Strategies
1. Decoy Pricing
Include a very expensive pricing tier that MAKES NO SENSE. The tier below should have ALMOST all of the same capabilities. When a prospect sees it, their mind will immediately go to the tier below. What they don't realize is you pushed them to do just that!
2. Reframe the cost
If Slack asked you to pay $120 per month, you wouldn't. But it asks you to pay $12 per employee, per month. In your head '$12/person' makes it much more digestable. You're ok with that. It's reasonable. Cheap, actually. That thought process is by design!
3. Product Bundles
If you buy just a burger you pay $1, but if you buy a meal you end up paying just a tad bit more. It increases the average order price for the company & gives you a false sense of a 'win'. In reality, the business won, but you felt like you got a deal!
4. Freemium
When you give your users basic features of their products for free, you get them in the door, and you warm them up. Typically, you lock them in somehow (data, users, usage rate, etc.) and force an upgrade to a paid package. Eliminates up-front friction.
5. Dynamic Pricing
Hotels, airlines, cabs, apartment rentals, etc. all have different prices for the same services, on different occasions. "We can't charge one person more than another." is a great myth. Supply and demand, baby.
6. Localized Pricing
If you're selling your product in the U.S. the price should be in US dollars. If you're selling your product, it should be in Euros. Always show the price in the local currency or you'll lose customers you should have earned.
In countries with a lot of competition, lowering your price can create appeal. In other countries, being a premium product will yield more fruit. Price based on cultural norms.
7. Price Per Unit
You want an AirBnB for 7 nights. In the app, bookings show up as per-night charges instead of the aggregate price. This way, the price appears small & affordable. By the time you're checking out, you're committed. Too late to change it up now...
8. Framing Effect
Instead of "Buy 2 units & get 2 units free" use "If you buy 2 units, you'll get a 50% discount". Users worry about losing something MORE than they feel about happy about gaining something ADDITIONAL. This will grow your conversion rates.
9. Bandwagon Effect
Adding 'Most Popular" to a plan helps visitors avoid falling into a paradox of choice. If you tell them a lot of people are buying something, they immediately think, "If it's right for all those people, it will surely be right for me."
10. Buy Now Pay Later
Allow your customers to purchase a product & pay in installments. It helps them avoid an up-front financial dent with high-priced products. This strategy MADE Peleton.
11. Create Urgency
Compel your users to make a decision fast. 📍 Give them a limited-time offer 📍 Tell them that only the last few units are left in stock Airlines do this VERY WELL. How many times have you heard, "We have to book this now, the seats are almost all taken."
12. Scratch out the high price
Scratch an initial high price & then reduce it with a discount. This displays a "high perceived value" for the users & also creates an urgency factor again. "Wow! It's X% off, but only for right now."
13. Monthly versus Yearly Pricing
Upsell your users with a generous offer to pay annually, instead of monthly. This makes THE BIGGEST difference when it comes to cash flow and runway. It also creates lock-in.
A few more suggestions:
- Your price should never be static
- It should be a CONSTANT iteration
- You should ALMOST NEVER price the same for every person
- No price is right or wrong, so much more goes into it
- Experiment, experiment, experiment.
Thanks for reading: Linear: A Vertical SaaS Newsletter. If you enjoyed it share it with a friend or leave a comment. Have a great week!