As a pricing consultant, I’m often surprised by how little attention B2B SaaS vendors devote to their pricing. Compared to the effort they expend to design amazing products, pricing it is often literally an afterthought. It’s like watching a master chef spend hours crafting a gourmet meal, only to slap a random price tag on it without considering the ingredients, the preparation time, or the foodies eating the dishes. Done right, your SaaS pricing will delight your customers and make your CFO do a happy dance. 

Pricing is a game of perception. It’s not about the cost, but the value. Pricing is a complex dance between what you offer and what your customers believe they’re getting. This is especially true in the world of B2B SaaS, where the intangible nature of the product can make it challenging to communicate value. As a leader in a B2B SaaS company, you hold the power to shape this perception, starting by SAAS Pricing.

Behavioral economics provides a framework for understanding the heuristics and biases that shape customer perceptions of value, allowing you to align your pricing with their needs and desires. By understanding how psychological factors influence customer decision-making, you can create a pricing strategy that maximizes revenue and customer satisfaction.

  • Anchoring: The first heuristic to consider is anchoring. When a customer sees your price for the first time, they immediately anchor their perception of value to that number. If your price is too low, they might question the quality of your product. If it’s too high, they might balk at the cost. The key is to find the sweet spot, the price that anchors their perception of value in just the right place.
  • Loss Aversion: People hate losing more than they love winning. When a customer is considering your product, they’re not just thinking about what they’ll gain, but also what they’ll lose if they don’t buy it or if your application does not meet their needs. By setting your anchor price at a level that makes the pain of not buying greater than the pain of paying, you can leverage loss aversion to drive conversions.
  • Social Proof: Social proof helps to neutralize loss aversion and reinforce the perceived value of your product. When a customer sees that others in their industry are using and benefiting from your solution, they’re more likely to see it as a necessary investment rather than an optional expense. Testimonials, case studies, and user reviews can all help to create this sense of social proof and drive conversions.
  • Framing: The way you frame your pricing can have a significant impact on how customers perceive the value of your product. For example, presenting your price as a monthly subscription rather than an annual fee can make it seem more affordable and help mitigate loss aversion, even if the total annual cost is higher. Similarly, highlighting the features and benefits that are included in each pricing tier can help customers see the value in upgrading to a higher level of service.
  • Decoy Effect: The decoy effect supports the framing effect in influencing customer decision-making. By offering a three-tier pricing structure, with the first tier designed to be sufficiently unattractive, customers are nudged to consider the second and third tiers. The entry-level option serves as a “decoy,” making the higher-priced option seem like a better value in comparison.
  • Scarcity: Scarcity can be used to drive a sense of urgency and encourage customers to take action. By positioning your offer as a limited-time opportunity or exclusive deal, you can create a fear of missing out (FOMO) that compels customers to act quickly. This can be particularly effective when combined with loss aversion, to encourage customers to feel that they are missing out on a valuable opportunity if they don’t act fast.

Putting It All Together

Before putting these principles into practice, start by conducting market research to understand your customers’ needs, goals, and pain points. Use this information to create a value proposition that aligns with their perception of value. 

Then, set your anchor price at a level that reinforces the perceived value of your product. Conjoint research and the Van Westendorp Price Sensitivity Meter are two useful tools to help you set your anchor price.

It’s important to benchmark your anchor price against competitors’ prices to ensure that it’s not too far from established industry pricing. While you want to differentiate your product and communicate its unique value, setting a price that is significantly higher or lower than your competitors can raise red flags for potential customers.

Once you’ve set your initial price, use framing, social proof, and scarcity to reinforce the value of your product, harness loss aversion to your advantage and drive conversions. And remember, pricing is not a set-it-and-forget-it proposition. You need to continuously monitor and adjust your pricing based on market trends, customer feedback, and your own business goals.

As a B2B SaaS leader, mastering the science of behavioral economics is essential to build your SAAS Pricing strategy, packaging and price points. By understanding the key principles of behavioral economics and applying them strategically, you can create a pricing that not only drives revenue but also communicates the true value of your product to your customers.

And here you can find the 5 things you can do now to increase price transparency.

Read more on Pricing or more Insights from us.