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Brian Graf:
Hi there, and welcome to episode 76 of B2B SaaS Marketing Snacks. This episode is a throwback from the archives. In this one, our old host, Mike Northfield, teams up with Stijn, who we all know and love, to do a deep dive into a key theory that Kalungi uses when building pricing and packaging: the feature matrix.
This framework is all about taking an unbiased look at the features your product delivers to customers and looks at each feature based on two different factors. How many people utilize it and how many competitors offer it. Plotting each feature on this matrix gives you the ability to segment your features into different pricing tiers and deliver your product in a differentiated way that delivers maximum value to your customers.
Enjoy!
Mike Northfield: Okay, so let's talk about the feature matrix. So you have a really interesting model that is something that we use a lot at Kalungi and is in the T2D3 book. You call it the feature matrix. I call everything a matrix.
Tons of matrices, matrices everywhere. And there's a lot of really interesting use cases for it.
You can use it for positioning and price planning and for feature planning as well. And I, so maybe we can just start from the top. Can you, I guess, give a little bit of a background? What's the backstory? How did you create it? Where did it come from? What's the basis of it?
Stijn Hendrikse: Yeah, it's interesting. The last couple of weeks, this came full, sort of frontal for me.
This is a tool that I've been using. For a while, I'll tell you in a second how I learned about it. I've used it for pricing, for packaging, and then there's a couple of pages in the book on it. And there's in my pricing and packaging masterclass, there's a couple of slides. But it is actually so much more deep in the way I've actually used it, and I've never really spent a lot of time talking about that.
So it's lovely that we can do that today. So Once upon a time, when I was in the product marketing team at Microsoft for the Microsoft Office product, my responsibility was the SMB market and public sector. And we were, we were going through the motions of first Office 2010 and then Office 365. And with that came a lot of pricing and packaging work.
And one of the things that I was really educated on by the two leaders that I worked for, Chris Caposella and now Takeshi Numoto, the new CMO at Microsoft. Those were my managers there. And they were really good at turning what we call product telemetry, the way people were using certain parts of the product into marketing strategy into marketing decisions.
And an example that people can probably relate to is when you have a product like Microsoft Excel that is very feature rich. There's a lot of things you can do with a product like that. Thousands of capabilities, right? Features that turn into benefits. Sometimes they're called buttons or whatever you want to call them.
But there's a lot of things you can click on. And knowing how many people click on the formatting button versus how many people use a pivot table versus how many people click on some kind of really fringe Function for statistical analysis is really helpful when you think about things like what are people going to be willing to pay for?
What are things that maybe are very valuable, but are not easy to use because they're not being clicked on a lot, maybe because they're not easy to find. And you can have all kinds of of course, theorizing around that. But, but if you have, and that was of course the case at Microsoft, we have a lot of product data.
I call this product telemetry. Why not use it? So one of the things that I like to do when I'm working with an early stage company and the software company that I founded is to get relatively early in the life cycle of a company and a product to get as much data from users as possible.
And now there's of course tons of tools Mixpanel and Fullstory and all these tools that you can use to track how people actually use either a web based application or an app that's installed on a device that can help you answer these questions like what is useful as in people use a lot they use it more what is easy to use usable right which is kind of the discovery part of a capability and then if you pair that with What do we feel is unique, is special, better, or easier to use, or more capable than what the competition has to offer?
Now you have basically two data points. How many people use it? And how unique, how special is it that you can turn in what we call the feature matrix. And we'll dive into what that looks like in a sec. But yeah, you can use it for product planning, for pricing and packaging. There's many other ways you can use it.
Upsell, cross sell journeys, right? There's all these things that you can do with that data. That is super interesting, Mike.
Mike Northfield: Very cool. So maybe we can talk about, so there's two axes.
So you've got on one, on the x axis, you have how unique is the feature the capability to your product and on the y axis you have how many people use it. If you are analyzing an existing product you can kind of look at Like product telemetry, like you said, to figure out how many people are using a specific feature, and if you're product planning, you can do competitive intel and research to figure out, like, how much of the market do we think actually wants this kind of capability.
At the top of the, as you go up on the axis, it is like all of the market. And then at the bottom of the axis, it's none of the market.
Stijn Hendrikse: Nobody needs it.
Mike Northfield: Right, exactly. We might be very proud of this feature, but nobody's actually using it. And on the X axis for the differentiation, on the far left, you have everybody does it.
So all of your competition,
Stijn Hendrikse: it's Total commodity.
Mike Northfield: Yep, exactly. And on the far right, it's really unique. So the Only you can do it. Exactly. So maybe you can talk about So there's four quadrants that kind of you can as you plot features and capabilities on those two axes You can kind of break it down into four quadrants and each of those is kind of unique. Do you want to jump into that?
Stijn Hendrikse: Yeah, four quadrants is kind of the easy way to visualize it, but you really there's really four kinds of four stages on each axis. So there's really 16 boxes.
Brian Graf: Sure.
Stijn Hendrikse: Okay, right So yeah, let's walk through this to actually one is the the feature differentiation Sorry, that's the horizontal one. So everybody does it.
All your competitors, it's a commodity. Most do it, not everybody, but most. Then some do it and then nobody else does it, but only you do it. So there's four levels of milestones, levels of uniqueness, if you will. And then on the Y axis, it's. Everybody uses it. This is something like if you think of a phone as a, as a product, right?
Being able to make a phone call would be at that level. And then most phones do this is maybe making a photo, right? Almost every phone does it, but you still may have a flip phone here and there that doesn't. Sure. And then some. Most people need it, sorry, it's the, the, the Y axis. And if some people need it, it would be a more French capability, right?
That is maybe being able to do 4K video with a, with a phone. Really cool to have that feature, but out of 10 people, how many people are really caring about the fact that they can do a 4K video? Maybe it's only a couple.
Brian Graf: Right.
Stijn Hendrikse: Right, and then the lowest level would be nobody's really using it. You know, it might be a capability on a phone that was very relevant 10, 15 years ago, but it's really not anymore, right?
I don't have a good example top of mind. But yeah, you have these 16 squares and if you don't have telemetry data, you can even, you know, just do a user survey, right? You could ask, and that's what a lot of early stage companies do, right? When you do MVP research, when you do job to be done research, when you do some form of early stage market testing.
You ask questions like how, pick between these two things. You know, what would you vote for? What would be more usable, useful for you? Right? So it's not necessarily, if you don't have telemetry data from your product, you cannot use this model. And same for competitive analysis, right? On the X axis, you probably can do a ton of online research by just looking at things like G2 Crowd and other marketplace, like people who analyze products and compare them to get sort of your first data set there.
Mike Northfield: And so there, there's a ton of different ways that you can use the inputs and outputs from the feature matrix to make strategic and actually really tactical decisions about how you How you price and how you position your product and maybe we can start to talk about some of the some of the more specific like applications of it.
What would you use it for? What's your first principle use case for it?
Stijn Hendrikse: Yeah, the most obvious one, the one where I learned to use it was doing packaging and pricing. So when you think of a typical 2, 3, 4 tier sort of packaging model, and of course at Microsoft Office 365 we have 16 tiers, and that's what you do when you have more complicated markets that you service, right, and multiple audiences.
But usually it's 2, 3 tiers, right, you have a basic product, maybe a premium product and some kind of an enterprise level plan. But usually when you have a 3 tier packaging or pricing structure, you usually call the middle one your hero. To your right, it's the one that you want, that you expect most of your market to want to need, right?
And where you also will have the majority of your customers where you're optimizing your pricing for, etc. So if you think of these four Uber quadrants in this model, you can think of the upper right quadrant, where you have most people needing a capability, that also is a capability that's relatively special, that makes your product unique or at least relatively unique, right? There's not like tons of other products out there to do the same thing. It's not a commodity capability.
Brian Graf: Sure.
Stijn Hendrikse: That is typically what we call the premium quadrant. Those are the capabilities that allow you to have a hero plan that will allow you to charge a premium price point.
And it also allows you to service a large amount of your potential clients. So if your goal is to get 60, 70 percent of your user base or your customer base to buy your hero package, your hero product offering, the one that's in the middle of your pricing lineup. Mm hmm. That's typically what you find in that upper right quadrant.
You want capabilities that are used by most people that are also relatively special to really feed the value proposition for that premium pricing tier. So what do you do with these other three quadrants? Things that are on the upper left. are things that are also used by a lot of your users, a lot of your customers that are needed by them.
But they may not be that special. There might be other competitors who provide this, maybe even at a lower price point. Those are great things to put in your lower price tier, right? If you have some part of your product and packaging lineup that is meant to serve as a group of customers that you don't want to lose to the competition, but you're also not necessarily expecting to make your, your primary economic value from those.
That's where you end up putting some of those lower maybe unique, less unique capabilities that are still relevant for a lot of. people, right? You might end up having a freemium product here, right? If you have a freemium premium model, you would literally try to move people from that upper left quadrant to the upper right quadrant, right?
In your pricing lineup.
Brian Graf: Sure.
Stijn Hendrikse: And then the bottom right quadrant is where you have. a lesser, a smaller group of potential customer users who need specific things that are unique. There are things that only you can do or that only some of your products other can do, but those could be great add ons, right?
Those are either things that you don't expect to sell to the majority of your customers, but only to a few, and that could be an add on, or it could be a, your premium plus package, right? That this may be a little more expensive than your hero plan. Because you only expect maybe 10 or 15 percent of your customers to need that, and they will be willing to pay more, right?
So that's where you put it. So this is more from a pricing and packaging perspective, and what happens, by the way, to the lower left quadrant, you ignore that, right? Just noise. Noise, right? Yeah, so let's, let's maybe dive into, so there's other ways to use the, we'll jump into other ones, but that's the first one, pricing and packaging.
Mike Northfield: Okay, so pricing and packaging. Components of this, I guess we can think about packaging, I guess I would also maybe lump like positioning as a piece of that into, into the equation. I'm also kind of, I'm starting to, I publish on LinkedIn what I call T2D3 canvases and they're kind of like these amalgamations of different frameworks that we have and they, it kind of expands on the ideas and makes them a little bit more focused and specific.
The first one that I'm working on that dives into the feature matrix talks about how you can use each of the different quadrants to inform how you use different capabilities and features in your positioning. So, for example, in the bottom right quadrant, things that are really unique to you and not many people want, you can almost use those as the things that form your point of view on how you approach a problem.
So you can almost use that as like those features and capabilities can help you niche down in a specific category. They're really unique, but not many people need them. And because not many people need them, you can use them to help add a premium perspective to your product. You can charge a lot more for them because they're truly unique and innovative.
The top. Right quadrant. Those are things that you generally would lead with when you are talking about your product. So in your, on your product page and on your like use case pages, you would generally want to highlight those things because most of the market wants them and they're unique to you. So they differentiate you and they capture the most attention.
And on the far left, in addition to helping create your freemium. Plan those can also be I consider those like table stakes in some ways like a lot of Prospects, especially in a mature category, will be looking for those things to qualify your product. And if you don't mention them, that you have them, let's say you only have one pricing tier, if you leave those things out, a lot of solution aware prospects may disqualify you from their consideration process because they so those kind of are like basic criteria that a lot of prospects will use to evaluate products on.
So it's important to make sure that you mention that you have those things, especially if the rest of the market does. So don't, don't leave. Yeah, table
Stijn Hendrikse: stakes are still important. They're table stakes.
Mike Northfield: Totally. Don't leave with them, but don't bury them at the same time. So that's another layer to add on to the pricing tier conversation is how you kind of use these features in your positioning lineup as well.
And then also product planning. I want to jump into that as well. Yeah,
Stijn Hendrikse: one more thing on positioning. I think you're so right. I think there's all these nuances when you either are trying to address a certain part of the journey that people are going through, right? Where, whether they're looking for a very specific thing that nobody else has, or they're just making sure that you can offer the same thing as everyone else, right?
So you have to be very careful there. There's also the brand side of positioning, right? What do you want people to believe about you, right? Are you the innovator or are you the value player in a category, right? Are you trying to be seen as a certain thing, right? Are you the fast follower?
Some brands are very successful by making their business out of, The upper left quadrant being really good at copying what the premium player does and bring it to market in it with a lower friction. Either lower price point, easier to use, easier to access, you know. So I think there's also this more strategic side of positioning that could lead you to care more about the upper left quadrant in the feature matrix than the upper right one, right?
And so yeah, I just wanted to make that other comment on positioning.
Mike Northfield: Oh, great distinction. Yeah, for sure.
Stijn Hendrikse: Yeah, product planning is then the next application, right? So we've talked about packaging and pricing, positioning and product planning. If you have small numbers of customers who tell you, Hey, this is what we would love your product to do.
And it doesn't do it yet. That usually feeds that lower right quadrant, right? Things that not necessarily all your customers need, but that is valuable to some. That's a fantastic input to your product planning efforts, where you, of course, you're constantly battling this, this constant motion from the lower right to the upper right to the upper left quadrant of things.
All these capabilities that you're offering are commoditizing over time, right? Your competitors will copy the things that your customers love about your product. And so those will move to the upper left side of the model. Automatically, because more of your competitors will do the same thing. So the only way you can counter that is to fill up the right side of the model with new things, right?
So the bottom right quadrant is a great place for that. Because if you have a certain amount of, a smaller group of companies who's telling you constantly, hey, these are the new things we need. If you do a good job making sure you filter out the one offs, the things that are really fringe and that are not worth your R& D efforts to invest in.
But you figure out how to, how to kind of find out what are the things that are really nice to add to your product that could benefit a larger group of customers over time. Great way to feature product planning. And your innovation sort of agenda and it kind of ties into another matrix that we use in our methodologies, Mike, the answer matrix, where we talk about how do you prioritize your go to market growth levers.
And there's, it also happens to be the lower right quadrant in that model where you basically say we will grow because of things we can do with the product where we can innovate the product that will allow us to either reach new. Use cases to solve for new use case to reach new audiences that we cannot, and it's dependent on product innovation.
So these two really come together in that lower right quadrant.
Another application Mike, that I think is really valuable for people to think about is to go to market strategy. So we have this model where we talk about market makers and market shakers. Basically, those are the two types of B2B SaaS startups that we see fall into kind of what Kalungi does, what the T2T2 methodology sort of applies to.
Market makers being relatively early stage companies that are about to kind of create a new category to run like the, like the earliest in that category to have a chance to kind of claim that field for themselves. And then the market shakers are more about how do I differentiate myself in an existing category.
How do I disrupt that category? Right? Using either a differentiation strategy where you have a premium value proposition for customers who are under serviced in that market and disruption being about how do we create a lower friction. Maybe lower priced or easier to access kind of offering in a market for people who are over serviced, right?
So we always talk about this: dominate, differentiate, kind of these three go to market models. The feature matrix is fantastic to explore those. Because if you're, if you're very strong in the upper right quadrant or more on the right side of these, upper right or lower right, differentiation is your, is the name of the game.
That's how you can go to market, right? If you're very strong in the upper left quadrant, right, you may have Not much on the right. There's not much that you do that is really, truly unique. But you're doing something really well, and you may be very efficient in doing them in the upper right, upper left corner that are needed by most.
Disruption is your go to market opportunity, right? So, that's another way to another application of this feature matrix for your strategy, I got a couple more. Mike, anything else, anything on that, on the go to market strategy?
Mike Northfield: Keep, keep running with it.
Stijn Hendrikse: Okay. So next application, demand gen, right?
Growing your pipe, growing your funnel, growing your business in two ways. One is kind of your, what are the upsell cross sell opportunities if you see people buying. A certain part of your product stack, a product's capabilities, they're using certain things, right? Are there other things that you think are valuable to them that you can lead them to?
Through your nurture campaigns, through your upsell cross sell, through your positioning, through your messaging, through your marketing. So just using this, this intel to drive upsell cross sell opportunities, propensity models that say, Hey, I see customers that look like these other customers that are not using the same capabilities yet.
Now you do a nurture campaign. You focus maybe some kind of education on them to let them ex HubSpot does this all the time, right? They have a really nice way, they combine a freemium premium model. You can use most of the HubSpot tools for free to start. And then they try to get you to pay when you really use it professionally or you want to use it upscale.
But they don't just have a freemium premium model. They have a try buy model that's kind of integrated with it. That even whether you're using free or premium, you're constantly getting exposed to new things to try out that they think would be valuable for you that they will then turn into trying to let you buy those, right?
That's totally based on them seeing patterns of, hey, there's this group of users of the marketing hub that are not using the capability, I don't know what it's called in AppSupport, but the calendar scheduling tool set, right? So, the great try by kind of hints would maybe be a good campaign, right?
So, you use the feature matrix for those opportunities. And then also maybe fine tuning your marketing language. to make sure you communicate benefits, not features. We use features when we talk about this internal tool set, because that's kind of how you describe being able to use a pivot table in Excel.
But of course, when you do your communication, when you turn this into marketing plans, and the way you package your product and name it, of course, you want to communicate benefits, not features. So that would be the fifth application, the ManGen. And then there's two more. One is ARPU expansion or ARPU standing for average or annual revenue per unit.
Often the unit is users, so ARPU is most of the time means. The revenue per user, but there are reasons sometimes when ARPU means per customer, per device, or per something else that is basically the pricing denominator that you use. And if you want to figure out how do I get more revenue from a single unit, from a single user, this tool set is great.
And it's not just because of what we just talked about, upsell, cross sell. That's of course a clear opportunity that you can pursue. But it's also about how do you optimize your pricing from just the pricing level. We talk a lot when we talk about pricing about how do you, how do you move from cost based pricing?
To at least market based pricing, right, make sure that you're pricing your product based on, you know, how much you stand out versus the alternatives. But those are, neither of those is ideal. Ideal is that you move to what's called value based pricing or even better outcome based pricing, right, where you're, the way you price your products or your services is completely aligned with the value that your customers perceive, right, and actually experience.
What's a better tool to use than your feature based feature matrix, which tells you how many people actually use certain things, right? And, and how often and, and how easy it is for them to use those, et cetera. And then make sure that your pricing models are aligned with that. And that you're charging for the things that people are actually using and getting value from.
A great tool also to then do price elasticity experiments and things like that. And finally, the, the, the seventh kind of application of the feature matrix is just optimizing your content, your messaging. If you know that certain things are not relevant for a large part of you, just take it off your website.
Now you have no more excuse to have a landing page that scrolls way below the fold, right? Now that you know what are the four or five things that people really care about that are either unique and different or that are used by most. That's where your messaging should center, right? And then you can just What's the razor?
The Occam's razor. Raise out that lower left quadrant. Yes. And maybe even some of the upper left.
Mike Northfield: Or just take them out of the navigation bar. Yeah, put them in the footer. Make them available, let people find them, but don't highlight them, don't lead with them.
Stijn Hendrikse: Yeah, so to summarize why you use the feature magic, packaging and pricing, positioning, your go to market strategy, demand gen optimization, ARPU expansion, making your clients Your average size bigger, and then finally optimize your messaging and make your content cleaner, basically.
Right on.
Brian Graf: Thank you to Adriano Valerio for producing this episode and the Kalungi team for helping us make this whole thing work. And of course, you for choosing to spend your time with us.
As a reminder, all the links we mentioned in this episode can be found in the show notes, and if you want to submit or vote on a question you'd like us to answer, you can do that at Kalungi.com/podcast. Every time we record, take one of these top three topics and jam on it.
Thanks again.