Putting Segmentation and Pricing Together

A look at Gravity Forms

Two days ago I wrote about segmentation. Yesterday I talked to you about value-based pricing. Today I thought I would bring the two together into a practical exercise and see if I can help make it all make sense.

I've decided to do this exercise by looking at a plugin we all know: Gravity Forms.

Now, to be clear, Carl, the CEO of Rocket Genius (makers of Gravity Forms), is a friend of mine.

But I haven't asked him for any data.

So the analysis I'm making below is completely my own, not based on any insider knowledge, and definately not based in the reality of his customer data. I have no idea how many customers he has, what segments he's defined, how much they've bought, or anything else.

I know as much as you do.

But since it's been around forever, and since it's well known, and since I've told Carl for years that he should change his pricing, I thought it would be a fun exercise. And he gets my analysis for free (except for all that toothpaste he once sent me).

Let's start with their segmentation

I don't know if Carl is doing any segmentation today, but we know at least one way to break up his current customers, and that is based on which product they buy:

Personal

People who buy a personal license are using Gravity Forms to put forms on their site. That is all that they're doing with it because there are no integration options for them with mail systems (like MailChimp) or payment gateways (like Paypal). If I had to guess, this is his largest segment. Tons of people buy it for a single site and use it for contact forms, and other business forms. I'm also guessing this segment is the least profitable, because they likely create more tickets (support) than any other segment, and need the most interactions per ticket. I don't know what his churn/attrition is, but I'm guessing that he sees a decent amount of turnover based on free solutions that have entered the market since his initial foray into the forms business.

Business

People who buy a business license are using Gravity Forms to put forms on their site, and integrate it to their mail systems (the only add-ons they have access to). They can add it to three sites, but my guess is that the average is likely closer to 1.8—where some people are putting it on two sites, few on three, and slightly more put it on one than two. Again, a guess. But they moved up in price to $99 because they needed integration with MailChimp or one of the other email services. I'm guessing this segment is more profitable than Personal, and has slightly fewer support requests (maybe as low as 60% of the requests as the Personal segment, on a per-site basis). I make this assumption because they're already embracing greater complexity (integration is always complex), and so they must be a bit more technically savvy.

Developer

Everyone else. These are folks that can only be defined as being “not personal” or “not business.” The reason for that is because there are so many different reasons why someone might buy the developer license—from being a developer, o being a site owner that wants to collect Paypal, to being someone who is integrating with some external system using Zapier. This kind of segment is the worst segment because they don't behave like each other. That said, I'm guessing it's the most profitable of all three segments, with an average of tickets per site lower. In fact, I bet there's a double digit percentage of users in this segment that have never, in years, submitted a ticket even though they may have tens of sites where Gravity Forms is activated.

Now here's how I would segment folks

As I wrote the other day, the point of segmentation is to be able to predict behavior, so I'm going to define several segments here that I think will prove to be practical and more helpful. As you can imagine, these will likely be the segments I use to shift my pricing, as well.

Site Owner

A person who pays for someone else to set up / develop / design their site, but needs forms on their site.They have the plugin because of a developer. This business owner gets support from their hired developer / designer.

They don't have a relationship with plugin vendors, per se, nor do they want one. They simply want to pay to have the software working on their site(s). Other than paying for a license, they may never know who Gravity Forms is, what they do, or anything else.

eCommerce Site Owner

A person who is using their site to collect money and uses Gravity Forms in that effort. They require payment gateway support. They have more complicated needs but they're making money with their site, and can afford to pay for support because it's crucial that they get the support they need.

Every day that their site is down or broken, they're losing the potential to collect revenue. They have demands and expect to get the service they require.

Site Builder

A person who is involved with the creation of several sites—either for themselves, their friends, or their clients. This is a technically savvy customer who works with several sites a year and will likely use a variety of extensions on the sites they work on.

They want access to several extensions but don't want to pay for each site if they can get the “site owner” to pay for the production license for their clients. Nevertheless, for their own sites, they want to activate the plugin several times. They have limited needs for support, and are good with using documentation and existing forum data to deal with most of their issues.

Application Builder

A person who is involved in using every aspect of Gravity Forms to build one or more applications using it and WordPress together to build a “system.” They need access to advanced support so that they can get the questions they have answered. They don't want the traditional support of a routine set of canned responses. They may have highly technical questions, or questions about how to integrate Gravity Forms with other systems.

Could I be wrong about these segments? Sure. Easy. Like I said, I don't have special insight into their customers and how they use their product. But if I were thinking about this space, that's how I would segment the prospects.

The reason we segment

I don't know if you have ever thought about it, but let me ask you a question. Why do you think that Toyota makes more than one kind of car? Why multiple models?

Why do you think airline carriers create both coach and first class?

The answer comes back to profit maximization. 

A single question like, “Is first class worth it?” is answered very differently by two very different kinds of people.

One kind says, “Hell no. We're all going to the same place. I'm not paying 2-20x for a nicer seat. That's insane.”

The other kind says, “Hell yes. I like the time savings when going thru security, the ease of keeping my luggage with me and storing it without drama, and the wider seat (and better traveling companion next to me) lets me catch up on rest (or work).”

Two very different answers because they represent two very different segments. And the increase in price isn't an issue if the second kind can afford it and finds value.

The same is true for cars. Toyota creates different cars at different price points, with different features, so that they have a solution for just about anyone, at their own price points.

They can make money off of everyone.

But you can't buy the cheapest Toyota and ask for the fanciest features. That's just wishful thinking.

Is Gravity Forms making money off everyone?

I know I sound like a broken record, but I'm just guessing here.

Anyway, I'm going to guess that the existing segmentation isn't profitable at every price point for every customer. I'm guessing that the lowest segment has customers there that cost the company money. And that means there's an opportunity to do better segmentation work so that they could make money off of everyone.

That's why you should segment your prospects as well—to create valuable offerings at different price points while making all of them profitable for your business.

So now that we have that in place, you can see why I created the segments I did. Because they allow me to get us back into profit maximization for each and every customer.

But I'm not doing it just by raising rates. Like I said yesterday, the goal is to line up the perceived value with your price points.

Different people have different perceived value.

Using segments to create new offerings

Every time I create pricing options, I want to link the attributes that drive the price to the value perceived by the segment.

So it means, for me, that I would change how the current licenses work. Today, you either buy a form license, a form license and email integration, or everything else.

I would shift things to match the value of my four segments:

  • Site Owner – very price sensitive
  • eCommerce Site Owner – less price sensitive
  • Site Builder – less price sensitive
  • Application Builder – even less price sensitive

So right away, we have to decide what the drivers are, and how these segments work.

One driver is price sensitivity. I've listed them from those who are most price sensitive, to those who are the least price sensitive, in my opinion.

Another driver is support needs. To list them in that order, I would say it goes:

  • Site Owner
  • Site Builder
  • eCommerce Site Owner – needs reactive support
  • Application Builder – needs proactive support

And lastly, I would hazard a guess that these four segments will always care about functionality. They'll be driven by it.

  • Site Owner – base features
  • eCommerce Site Owner – base features + 2 extensions (likely email / payment)
  • Site Builder – all the features + extensions
  • Application Builder – all the features + extensions

When we put it together, we might end up with this.

  • Site Owner – base features / no support / 1 activation
  • eCommerce Site Owner – base + 2 extensions / reactive support / 1-2 activations
  • Site Builder – all features & extensions / docs support / 10 activations for owned urls (no clients*)
  • Application Builder – all features & extensions / proactive support / 1-2 activations

*The expectation would be that Site Builders would be a channel for Site Owners to activate / license their own sites.

Segmentation and Pricing: Putting it all together

This post isn't meant to be a robust discussion on pricing. So I won't go into details as to why I picked the prices I did.

The point is to marry the segmentation work above with pricing, to see how we use one to help us create offerings and then price them accordingly.

Again, for the last time, this is a fictitious analysis because it's being done without data from Gravity Forms. It's just an exercise.

  • Site Owner – $24.99 / year
  • eCommerce Site Owner – $249 / year
  • Site Builder – $299 / year
  • Application Builder – $399 / year

Now, you'll look at that and maybe think I've lost my mind. I'm ok with that. But if you make certain assumptions about the cost of closing a ticket, and you assume a certain load of tickets per site, you'll find that these prices would make each customer (and segment) profitable.

Additionally, you would notice that the prices are aligned with how people intend to use the product and their site.

  • Site Owner – Run my own site. Have some forms. May just be a blog. Lots of free options.
  • eCommerce Site Owner – Make money from my site. Can afford to spend for support. Need it quickly.
  • Site Builder -Make a living building sites using this technology. Want access to everything.
  • Application Builder – Building something complex, need everything, and want real and quick support.

In some ways, even as I write it, I'm thinking my pricing is too low. But hey, like I've said a million times, this is an exercise, not the facts.

My point is simply to show you how you marry pricing and value with segments and even use those segments to shape your offerings.

Hopefully, I've done that and you've seen the steps.

What questions do you have?

This post may contain affiliate links. If you click on them and make a purchase, I'll get a commission, at no cost to you.

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Chris Lema
Chris Lema has been working with WordPress since 2005. Over the years he's been a blogger, a speaker at WordCamps, a coach for WordPress product companies, and the founder of the conference for WordPress business owners, called CaboPress. Today he's the VP of Products at Liquid Web, where he manages the world's first managed platform for WooCommerce stores.

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