Creating a technology pricing strategy is vitally important to any tech business. This won’t come as an easy task and there are many things a company must consider when looking to build a winning pricing strategy. One thing to realize is that customer values and perceptions are constantly changing, and their spending patterns change as well. Thus, a company must change its pricing strategy to accommodate their changing customers. In this blog we will discuss the trend from licenses to subscriptions in software pricing, cost versus value based technology pricing strategies, and some pricing strategy research techniques that could guide your company to building a winning pricing strategy.
The trend in software pricing strategy has moved from selling software licenses, often in a box, to subscription based, and “box-less” model. Traditional software pricing strategies were focused on selling software licenses, and then charging with each new release. This generally resulted in high up-front costs for software customers and uneven revenues for software providers. Newer software pricing strategy models are subscription based, typically monthly or annually. This strategy focuses on customizing different options to cater to different segments, typically based on differences in price sensitivity or interest in “Killer Features.” Subscription based software pricing strategies, skips the focus on new releases, makes the focus on continuous improvement and provides more regular and reliable income streams.
Another traditional software pricing strategy was the use cost based modeling. Cost based modeling takes the cost of producing the software and adds a premium to make a profit, usually expressed as a percentage of the cost. The movement now is heading toward a more value based model. Value based modeling focuses on the price customers are willing to pay compared to the competitive benefits the software offers. The image to the right depicts the differences between cost and value based modeling. Value based pricing is helping software companies ensure that they don’t “leave any money on the table.”
The following are a few innovative software pricing strategies we have helped companies optimize for their own market:
Topics: Pricing Strategy