Pricing is central to strategy and positioning - a conversation with Rob Litterst

Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talent.

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Over the past few years, Rob Litterst has emerged as one of the most compelling new voices in pricing. His Good Better Best blog has consistently insightful content. He is able to look at a company’s pricing page and see its pricing strategy and positioning.

We spoke with Rob early in 2021 to get his insights into the year ahead.

Ibbaka: Tell us about your background and how you got involved in pricing. What lessons do you bring from earlier parts of your career that inform your thinking on pricing?

Rob: My tech career started at HubSpot in Sales. I started as a Business Development Representative doing outbound prospecting. Every day we were reaching out to small businesses to get them familiar with inbound marketing and marketing automation. 

This was back in 2013 when Salesforce had just acquired ExactTarget and Pardot to form Marketing Cloud, and there was a lot going on in the space. I had a chance to be one of the first few members of a vertically-focused team selling directly to publishers and online media companies. I loved it, and developed a bit of a fascination with niche publishers.

One of the things I realized very quickly was that HubSpot’s pricing model wasn’t designed for publishers. Hubspot’s pricing is based on the number of leads or contacts in a customer’s database that can be nurtured into opportunities and ultimately, customers. 

The contact model is under-pinned by email addresses, and there is a ratio between how many emails you can send per contact. We found very quickly that publishers had much larger email databases and were sending way more emails than a typical B2B company. The nature of their business model made it so that they weren’t driving the same level of revenue per contact as a B2B company either. The value equation was just very different. 

That was my introduction to the idea that pricing can really help you understand who your target customers are. I think about HubSpot’s pricing all of the time. They understand the importance of value-based pricing and have a brilliant pricing model. One of the biggest things I learned at Hubspot is that a strong pricing model can really enable and empower your sales team. 

After leaving HubSpot, I spent some time at a company that introduced a usage-based pricing component after years of not charging for it. I experienced first hand how difficult those conversations can be with long-term customers, and how important it is to nail the foundation of your pricing model early, rather than going to market with one model and making big changes later. 

Ibbaka: Did HubSpot square the circle for publishers? Did they adopt their pricing model for publishers?

Rob: For publishers, we really had two value propositions. 

If they relied primarily on subscriptions for revenue, we’d talk about how they could leverage HubSpot’s audience intelligence to drive more paid subscriptions and serve those subscribers with more of what they wanted, ultimately resulting in more revenue.

If they were a niche B2B publisher with a smaller audience that relied more on an advertising model, we would still reference the subscription piece, but we’d spend more time walking through how they could use HubSpot’s software to generate hyper-qualified leads for their advertisers. We had some B2B publishers using HubSpot to run campaigns for their sponsors, where they would deliver sales-ready leads for 6-figure products. As you can imagine, they could sell those leads for thousands of dollars, so it was a total game-changer for them. 

That said, HubSpot never adopted their pricing for publishers, which was totally the right call. It was a very niche use-case compared to their broader target market. 

Ibbaka: You’re now deeply embedded in pricing. Pricing has a lot of different dimensions; can you say something about how you approach pricing and what kinds of pricing issues are of most interest to you.

Rob: I think pricing might be the clearest intersection of product and strategy. It’s a powerful way to see who a company wants to be, who they optimize their product for, and how they position it. A company’s pricing page is an absolute gold mine in terms of what you can learn about them.

I try to explore pricing pages across a wide range of verticals to figure out how strategies applied in one area might be relevant to a completely different market. I also love studying how organizations limit usage and features to serve different types of buyers at different prices.

Ibbaka: What are your thoughts about pricing in 2021?

Rob: The biggest trend is the shift towards transparency. Last year, I saw many examples of new value-metrics. Value-metrics are moving closer to the actual value people are getting from the product, and I think that trend is definitely going to continue.

A sub-bullet of that is a trend that we’re seeing more of, the ‘We only make money if our customers make money’ model. I am thinking about Substack, Lambda School and other companies that are pushing the envelope on this. This is where pricing almost becomes a philosophical differentiator between these new companies and established incumbents in their respective markets.

One of the most fascinating companies that I looked into last year is the data cloud company Snowflake, which has a pay-as-you-go model. The subscription model isn’t perfect for everybody, and sometimes I think there’s been an over-indexing toward subscriptions.

I could see a correction at some point where some companies realize it might be beneficial to pivot away from subscriptions. That said, I could also see companies changing their product to make it better-suited to a subscription model. Consistent, recurring revenue is pretty enticing.

Ibbaka: What did you see in 2020 as companies tried to respond to the Covid-19 pandemic that you think people should be brought forward into 2021.

Rob: One thing that I saw was a lot of companies started to give their product away for free. What I found interesting was some companies giving away certain products for free, with the intention of keeping it free in perpetuity. I interpreted that as companies not just giving their products to do something good during COVID-19, but also realizing where they want to monetize going forward, and doubling down on that.  

Notion started giving away their individual plan for free. There is a Personal Pro plan you can upgrade to and pay for, but their core functionality for individuals is free. It felt like they decided to monetize in the enterprise, and build market share with the individual user.

Nike did something similar. They took down the paywall for premium workouts on Nike Training Club. Instead of monetizing their digital fitness app directly, they’re using it as a vehicle to learn more about their users and serve them with more personalized commerce experiences.

Ibbaka: What are the key things you are looking for in 2021 and beyond?

Rob: I’m excited about the trend towards transparency. Everything is becoming more transparent, and as that happens, pricing is going to be a natural offshoot of that.

Consumers have more insight into the companies they buy from than ever before, making it more and more important to empathize with customers and make sure you are aligning with what they value.

Philosophically, I love what Discord is doing. They are one of those companies that could easily adopt the kind of advertising model that other social media companies have been using. Instead, they have this optional subscription that really aligns with what power-users want to get out of the platform. It gives these users a chance to get more out of the platform without having to sacrifice their data or be forced to pay for something. I think the idea of keeping your core product free to get it in front of as many people as possible, then monetizing add-ons that make the experience better is a fascinating concept.

Ibbaka: Looking at the innovation part of the economy, do you have any ideas what some of the critical uncertainties might be for 2021?

Rob: I don’t really believe in subscription fatigue. If you are providing value and the subscription model aligns with how people get value from your product, then people will continue to pay for subscriptions.

I do think there are companies using a subscription model when it is not the best fit for their business. As we move towards transparency, pricing is becoming a lever that people are pulling to differentiate themselves, and align better with the value their customers are getting. 

As pricing continues to evolve and moves towards transparency, some of those newer models will enter new industries. Companies who don’t adapt to more value-oriented pricing models are going to feel it. If I were any company right now, I would be looking at my pricing and making sure that it makes sense in the eyes of my customers. 

Ibbaka: Moving on to the skills area, what are some skills you use with your pricing work?

Rob: I’m a bit scatterbrained and a generalist at heart. Pricing is about as niche as I can go in terms of writing, and within that niche there’s a lot to write about. I’m super interested in consumer technology, but also B2B technology and I honestly think B2B companies are doing some of the most innovative things in pricing.

What I bring to pricing is the idea of opening up your gaze to the different types of companies out there and looking for inspiration outside your market.

I also think pricing, marketing, and sales are closely related, so I’m always thinking about pricing through the lens of sales. When I’m visiting a pricing page, I ask ‘If I were a sales rep at this company, what would I think about the pricing and what problems would I run into?’

Ibbaka: What are the skills people in pricing will bring to the game in 2021 and beyond? Is that changing?

Rob: I would say continue looking outside of your domain and outside of your industry to look for ideas from other spaces. There may be things you come across and want to factor into how you’re pricing your own products.

The line is getting so blurry between consumer and B2B, and there are strategies that work in both. It is easier than ever to experiment with strategies from a completely unrelated field.

The Morning Brew newsletter has an amazing referral program. I don’t see why a B2B company couldn’t use a similar approach to cultivate loyal customers and reward them.  

I also think people tend to look at pricing through the product lens, and need to really factor in marketing, sales and customer success. Those are the departments that are going to feel the implications of pricing first-hand. Making sure your pricing manager is working very closely with marketing, sales, and customer success is critical.

Ibbaka: Pricing is sometimes seen as a niche profession. How do you see pricing connecting to the product part of the organization? What role can price play in weaving these threads together?

Rob: In my experience, it’s pretty rare that a company has a designated pricing team. Often it’s just one person or a cross-departmental committee. I definitely believe pricing takes more than one person. I love the committee approach, especially if you’re bringing stakeholders from each function to measure results and see how pricing is impacting goals.

Appointing stakeholders from product, finance, marketing, sales, and customer success, and meeting on a regular cadence is a great start. It’s also really important to have a mutual understanding of success metrics that can be tracked on a regular basis. 

I recently read April Dunford’s book, Obviously Awesome: How to Nail Product Positioning so Customers Get It, Buy It, Love It. She shows how positioning touches a lot of different parts of an organization and how people have different interpretations of positioning because they are working from different definitions of what ‘positioning’ means. 

Sometimes, I think the same is true for pricing, which is why it’s so key to get your stakeholders meeting regularly and working from the same definition.