"How many of your customers actually do this spreadsheet?"

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This was the question I asked the executive team of the car leasing company I was helping about a decade ago when I started to do pricing consulting work (and before I did only B2B SaaS pricing).

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Car leasing is an interesting business from a pricing model point of view:

• Several startup fees: upfront onetime payment, contract fee, registration fee etc.
• Recurring fees: Monthly lease + add-ons like insurance, roadside assistance, parking licenses etc.
• Usage based fees with or without minimums: included miles on the contract with overage pricing for extra miles
• Usage based fees outside of the contract but part of the TCO (total cost of ownership): gas, carwash etc.
• Exit-fees: paying for damages like scratches, cleaning, extra contract fees et.

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My client at the time had decided to be the honest low-price provider in their marketplace and they were showing me a spreadsheet comparing the total TCO of their midsize car (a Mazda 6) to all of their competitors.

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It had about 40 columns of math, with about 15 rows - one for each competitor.

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And the spreadsheet clearly showed that when all of the numbers were added up, my client was about 7% cheaper than their closest competitor and about ~10% of the median price of the market.

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So their question to me was: "Why aren't we gaining market share?"

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Which I answered with the aforementioned question:

"How many of your customers actually do this spreadsheet?"

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The answer, of course, was : not a lot.

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Some do, for sure. Maybe 10% in the car leasing market. And in all markets it is the same - you will have a range of customers. Some are very sophisticated and care a lot about price. Others not so much.

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For car leasing, because it is so complex, most customers do some of the math, get confused, ask a friend, postpone the decision another week, talk to their wife/husband a 5th time and then just make a late-night decision online based on a rather diffuse distillation of all of the various inputs.

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This is how most pricing decisions gets made in high-competition, low-sophistication markets.

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SaaS and AI is the same: if you sell into a fairly commoditised market with lots of similar-ish options (e.g. non-enterprise AI sales-enablement tools right now, judging by my spamfolder), the customers will by and large fall into two categories:

1) The ones that do the full spreadsheet and make a decision comparing all options across all vendors using strict discipline.

2) The ones that do part of the spreadsheet, but then essentially just default to some preferred option that seems 'good enough' and where they like the vendor (for whatever reason). Once in, they choose what to buy from the menu of options that vendor provides.

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The point of this weeks newsletter is that the first category of customers take up 90% of your attention, because they engage heavily and interrogate you with uncomfortable question, but they only make up 10% of the market.

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This is what I call asymmetric information.

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It's not that it's wrong. It's just that you over-react to it, thinking that 100% customers have the full spreadsheet and forget to create an offer and a sales process that sell well to the 90% that are mostly overwhelmed and have a different decision process.

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Most customers, most of the time, care just about your product. Sell to them.

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As promised: a point about pricing every Monday. ​

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