It’s been said that you learn the true character of a person by how they respond to adversity. That applies to companies, too, and throughout our current adversity, some software enterprises have been failing their test.
At issue is the practice of SaaS providers who, during the pandemic, continued to charge their customers full price despite plummeting use of their software and/or while reducing their service levels.
SAAS Pricing Mistakes
Here’s the scenario that is playing out, using the restaurant industry to illustrate. As the pandemic hit, many restaurants across the country were limited to take-out only or completely shut down. For those restaurants, the software they deployed to manage their table seating flow suddenly became useless to them. Should the software company continue to charge the restaurant full price even though their solution was not being used?
Further, like companies of all kinds across the country, many software companies were forced to reduce staff. Conceivably, this affected the service levels that form part of the value exchange for the monthly SaaS subscription fee–delivering a steady flow of feature upgrades, for example.
On one hand, the software company is justified in continuing to charge its fee. The customer could use the software, after all, and it’s not the company’s fault that the restaurant had to temporarily close. On the other hand, being justified may not be the same as being fair.
For software companies, this is more than just a character dilemma. It is a legitimate business issue, too. Companies that ignore the ramifications of charging for something that the customer is prevented from getting full, or any, value from may be putting themselves at risk. We call it “creating your own cliff” and it could be a pretty steep fall.
The Impact of Pricing Fairness
Regardless of what is being purchased, customers want to be treated fairly, and they will remember who did–and did not–live up to that, particularly in times of distress. We’ve been seeing this manifest in industries like insurance–where some auto providers reduced or rebated premiums because their customers are driving less while sheltering and working at home. Some car manufacturers offered to waive monthly payments for unemployed customers.
Conversely, some universities are being castigated for not at least partially refunding tuition to reflect the diminished value of online vs. live instruction. And some private clubs are charging members full rates despite closing their facilities and providing only take-out food. A golf club in North Carolina even reinforced a policy requiring members who resigned during the pandemic to pay for all months they missed before being permitted to rejoin.
In the software world, we’re seeing companies with heavy demand products–like video conference platforms–lower prices to opportunistically gain market share. Yet in doing so, their pre-existing customers – who may be unaware of the new pricing–may be kept on old, higher-priced schedules.
When customers begin to question fairness, loyalty erodes and defections can pile up quickly. In these cases, SaaS companies can be especially vulnerable, as the defections create a sudden and significant cashflow drop off.
Hence, the “cliff” analogy.
Avoiding the Cliff
Your customer relationships rely on a delicate balance of perceived value vs. monies spent. It is in this exchange where you build trust, equity and corporate value. A crisis can disrupt that equation very quickly.
Our advice? As your customers try to come out of the crisis, take the lead by acknowledging pricing policies that are clearly lopsided in your favor and open up a dialog with your customers. Demonstrate that you understand their circumstances and are doing what you can to help them. This can be in the form of an across-the-board discount, a short-term waiver for customers with dramatically lower usage rates, a conversion of unused monthly fees into another product, a process to apply for consideration, even just an offer to discuss. Or, to help them come out of the crisis strongly, perhaps a temporary free upgrade. The more proactive you are with your customers, the more they will believe you prioritize their interests, and the more you can strengthen loyalty rather than risk it.
And the further you’ll be able to steer clear of the cliff.