Creating and capturing value: Sales model and pricing strategy for saas startups in niche markets

Abstract

Having the right price is crucial for any business as price is the only element of the 4P’s of marketing that actually generates revenue. Getting the price right is the difference between the firm’s continued survival and growth or collapse. Traditional methods of pricing have usually tended to proceed from an internal analysis of the organizations cost and the investor’s desired rates of return. This model of pricing is largely derived from a combination of the cost-plus theory of pricing as well as the ROI or return targeting pricing method. Other popular pricing strategies would be using the competition as a reference point and pricing slightly above or below what they ask depending on the company’s positioning strategy. These are all perfectly acceptable ways to price from a management accounting and cost management point and each have their merits for certain types businesses operating in mature markets. However, for Software-as-a-Service startups where cost of goods and warehousing is almost non-existent it is harder to justify cost-plus pricing as a viable strategy. Also, because many startups often operate in new product categories it is difficult to benchmark against competitors. Startups need a new way of approaching pricing based on the value that the product delivers to customer and this price must be able to support the business model utilized by the startup. Our research is conducted with the aim of outlining the different pricing and models available to startups in SaaS and identifying which ones are most suitable for startups in niche markets hoping to scale at a sustainable pace. We chose TOCO, a Belgian FinTech startup for our case as it offers a solution for a small niche and it operates in the small and fragmented Belgian market. Through qualitative interviews we found that price is the one element that best communicates value to customers and that can also be changed quickly for revenue impact. Our report will show that the best pricing strategy for sustainable growth is the one that first and foremost considers value to the customer and then works back from there to product design and costs management.