Blog Entry

May 20

Software Pricing Strategy: Happy Customers and a Happier You

A few years back, I found myself with a few colleagues in a bar in Amsterdam having a conversation around the merits of online consumption of music. We were converging to a common view point as to why anyone would want to pay 99 cents for downloading a single song when you could buy the entire DVD in any retail store complete with jewel box and lyrics for $10-15.  Besides, you can always upload songs from CD to the electronic devices; this sounded like the better option to us, a win-win. Proud of our intelligent conclusion over a beer, we were soon up for a rude awakening when the person sitting next to us declared that we are nothing but a bunch of old fellas who don’t know what is going on in the new world.

Taken back by the comment from this complete stranger, we embarked on a journey to prove him wrong, but were immediately humbled by his question: “Have you seen your kids thinking even for a second before sending a text message on their mobile phone?” It’s important to note that this story takes place before there were apps like Facebook and Whatsapp and sending an SMS based text message actually cost something. Then he said with a nonchalant flair, “Why would those kids even think twice before downloading a music track that will cost 99 cents?”

Years later, I replay that message in many spheres of life. Recently, I haven’t even bothered to go to any of the social networking sites over my PC and am almost exclusively using my handheld device to do so. Without us even realizing,  our preferences are changing continuously. As these preferences (or delivery channels: on premise, as a service) change, their satisfaction levels change as well.

If you are responsible for growing your software business, you would like to be able to serve those changing preferences.  Supporting a new operating system or device does however pose unique challenges that may require significant investment; the product line manager would need to make careful and upfront decisions after significant due diligence. It is not just about supporting a new software delivery model, pricing model or platform within the product, but rather is about changing the entire back-office infrastructure so that purchase orders can be accepted for new part numbers and that the new product can be provisioned and fulfilled.

Keeping these challenges in mind, a flexible licensing and entitlement management system can help ease a lot of your effort in this context. For example, if you are introducing a new pricing model of “concurrent user pricing” or “annual pricing” for an existing product that is being sold in a “seat based perpetual pricing” model only, doesn’t require any change in the implementation of product. PLM’s would benefit from this opportunity and may start offering these new pricing models. This makes it exciting for the customers to use your product instead of looking for an alternative.

Regardless of the pricing model you choose, the focus needs to be on how your customers want to pay for the product.  Would they rather choose individual features at a smaller price, or a bundle of features providing value? If it wouldn’t impact how your product is implemented, having the ability to offer both pricing options would make the most customers happy, and wouldn’t that also lead to a happier you?