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The Art of Pricing Software Features

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Webinar sponsored by LogiAnalytics. Describes some software pricing basics and then moves from product pricing to feature pricing.

Webinar sponsored by LogiAnalytics. Describes some software pricing basics and then moves from product pricing to feature pricing.

Published in: Business, Technology

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  • 1. The Art of Pricing Software Features Presented by Jim Geisman 233 Needham Street • Suite 300 • Newton, MA 02464 • (508) 647-0330
  • 2. About This Presentation Decide Develop Deploy Time Decide Develop Deploy Decrease Delay Due to Pricing © Software Pricing Partners, Inc All Rights Reserved -2-
  • 3. Topics  Perspective  Offering Structure  Price Setting  Value Creation  Wrap-Up © Software Pricing Partners, Inc All Rights Reserved -3-
  • 4. Common Perception Etc. Price © Software Pricing Partners, Inc All Rights Reserved -4-
  • 5. ISV View of Price Level Functionality 75% Architecture alignment 61% Licensing 54% Pricing 49% Speed of implementation 49% 0% 20% Source: LogiAnalytics 2013 State of Embedded Analytics © Software Pricing Partners, Inc All Rights Reserved -5- 40% Very important 60% 80%
  • 6. It’s Not Just About Price Level Price Level Packaging Quality Discounts Delivery Customer Type Services Technology Payment Timing Prior Orders Price Metric Price Structure Rights to Use Product Access © Software Pricing Partners, Inc All Rights Reserved -6-
  • 7. Price Often Reflects Value Value Price © Software Pricing Partners, Inc All Rights Reserved -7-
  • 8. Pricing Model Framework Amount Bundles Metric Incentives Deliverables Amount Terms Products Metric © Software Pricing Partners, Inc All Rights Reserved Incentives -8- Services Terms
  • 9. Topics  Perspective  Offering Structure  Price Setting  Value Creation  Wrap-Up © Software Pricing Partners, Inc All Rights Reserved -9-
  • 10. Offering Structure Relate Packaging to Value Delivered Overpriced Price Objections Are Mostly About Value Delivered Pay Money TG2BT Get Value © Software Pricing Partners, Inc All Rights Reserved - 10 -
  • 11. Offering Structure More (Functionality) Is Often Less (Value) Value Features © Software Pricing Partners, Inc All Rights Reserved - 11 -
  • 12. Offering Structure Packaging Evaluation Framework Usage versus Value High Must Haves Features No Value-Add Options Usage Frequency Low Low High Value in Use © Software Pricing Partners, Inc All Rights Reserved - 12 -
  • 13. Offering Structure Define Products, Add-Ons Basic Usage versus Value Mid-Range Premium High Must Haves Features No Value-Add Options Usage Frequency Low Low High Value in Use © Software Pricing Partners, Inc All Rights Reserved - 13 -
  • 14. Offering Structure Evaluation Framework in Action © Software Pricing Partners, Inc All Rights Reserved - 14 -
  • 15. Offering Structure Example: Edition Packaging © Software Pricing Partners, Inc All Rights Reserved - 15 -
  • 16. Topics  Perspective  Offering Structure  Price Setting  Value Creation  Wrap-Up © Software Pricing Partners, Inc All Rights Reserved - 16 -
  • 17. Price Setting Use Value-Driven Price Level  Understand how value delivered  Use metric that aligns with value  Set price levels in line with economics Value Delivered Price Paid Metric Amount © Software Pricing Partners, Inc All Rights Reserved - 17 -
  • 18. Price Setting Monetize Value Delivered Better Economic Impact Faster Current solutions Cheaper Time Hard Dollar Impact of Better / Faster / Cheaper © Software Pricing Partners, Inc All Rights Reserved - 18 -
  • 19. Price Setting Focus on Economic Value Economic Value Drivers Revenue Impact    Cost Impact Increase Accelerate Sustain    Decrease Defer Avoid Value Adjustments Risk • Predictability • Likelihood © Software Pricing Partners, Inc All Rights Reserved Timing • Occurrence • Duration - 19 - Associated Costs • Out of Pocket • Opportunity
  • 20. Price Setting Example: Product Usage Economics vs. No Use Sales rep economics    40 customers $25K ACV Quota $1M Benefit Financial Impact Hit numbers faster • • Hit quota 5% sooner (November vs December) Impact = $50K more sales Provide better service • • Improve retention by 5% Impact = $50K = 40 customers @ $1.25K ACV Do more deals in current budget • Handle 5% more transactions • Typical benefit = $150K Impact = $50K = 2 transactions @ $25K  Typical cost per rep = $300 – $3,000/yr. Benefit = 500 – 5000 X Cost  © Software Pricing Partners, Inc All Rights Reserved - 20 -
  • 21. Price Setting Unique Value vs. Alternative Your Product Competing Products © Software Pricing Partners, Inc All Rights Reserved How Much Is YOUR Added Value Worth? Unique Value Adding Features Base (Common) Features - 21 - Market Price
  • 22. Price Setting Find Working Price Range Economic Value Demand Forecast X Competition ROI Hurdle Feedback / VOC / Research © Software Pricing Partners, Inc All Rights Reserved - 22 -
  • 23. Price Setting Absolute vs. Relative Pricing Lamborghini Aventador $670,000 $60.00 Use Relative Pricing for Features and Product Editions © Software Pricing Partners, Inc All Rights Reserved - 23 -
  • 24. Relative Prices Feature Packaging and Pricing $25 Δ=$40 Δ=$60 Δ=$175 © Software Pricing Partners, Inc All Rights Reserved - 24 -
  • 25. Relative Prices Example: Feature Pricing 100% Percent of Max. Price Δ=20% $25 Δ=$40 80% Δ=40% 60% 40% 20% Δ=$60 0% Δ=$175 © Software Pricing Partners, Inc All Rights Reserved 0% 20% 40% 60% Percent of "Value" - 25 - 80% 100%
  • 26. Relative Prices Example: Feature Pricing 100% Percent of Max. Price Δ=20% 80% Δ=40% 60% 40% 20% 0% 0% 20% 40% 60% 80% Usage versus Value 100% Percent of "Value" High Must Haves Features No Value-Add Options Usage Frequency Low Low Value in Use © Software Pricing Partners, Inc All Rights Reserved - 26 - High
  • 27. Topics  Perspective  Offering Structure  Price Setting  Value Creation  Wrap-Up © Software Pricing Partners, Inc All Rights Reserved - 27 -
  • 28. Value Creation Offering Structure Tiered Offering Á là Carte Offering Value Price © Software Pricing Partners, Inc All Rights Reserved - 28 -
  • 29. Value Creation Impact of 3rd Party Technology Accessible Integrated Embedded Feature Feature New Product +34% +51% +15% Value Increase Source: LogiAnalytics 2013 State of Embedded Analytics © Software Pricing Partners, Inc All Rights Reserved - 29 -
  • 30. Topics  Perspective  Offering Structure  Price Setting  Value Creation  Wrap-Up © Software Pricing Partners, Inc All Rights Reserved - 30 -
  • 31. Wrap-Up Valuing Faster / Better / Cheaper  Faster    Better    Same results faster More results in same timeframe Better results with same resources Same results with fewer resources Cheaper   Same results cheaper More results with same costs Better Economic Impact Faster Current solutions Cheaper Time © Software Pricing Partners, Inc All Rights Reserved - 31 -
  • 32. Wrap-Up Costs Revenue Higher Revenues Better Than Lower Costs Time  One-time increase   Time  Increase prices  Higher growth rate  © Software Pricing Partners, Inc All Rights Reserved One-time saving  Decrease sales friction Slowed growth rate  - 32 - Reduce inventory Avoid costs
  • 33. Wrap-Up Use Packaging to Compete Not Price Build Up Value Take Away Your Price “Their” Price How much needed to justify price? © Software Pricing Partners, Inc All Rights Reserved - 33 - How little needed to beat price?
  • 34. Wrap-Up Impact of 3rd Party Technology Accessible Integrated Embedded Feature Feature New Product +34% +51% +15% Value Increase Source: LogiAnalytics 2013 State of Embedded Analytics © Software Pricing Partners, Inc All Rights Reserved - 34 -
  • 35. Questions? © Software Pricing Partners, Inc All Rights Reserved - 35 -
  • 36. Thanks! Jim Geisman jimg@softwarepricing.com +508 - 647 - 0330 © Software Pricing Partners, Inc All Rights Reserved - 36 -

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