Pricing and Licensing Strategies for Growth
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The document discusses pricing and licensing strategies for software vendors in a changing landscape. It covers why customers buy, trends impacting vendors, and elements of pricing models. Key points include: - Customers buy based on how offerings meet their needs, are good value, and have acceptable risk. Virtualization and cloud trends impact how vendors track usage and package offerings. - Emerging models like subscriptions are rising as perpetual licenses decline. Commoditization increases competition. Vendors must focus on delivery flexibility and simple, value-based pricing. - Effective pricing models focus on overall value, charge based on value created, and set price levels accordingly. They include packaging structure, discounting framework, and value metrics
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Pricing and Licensing Strategies for Growth
- 1. Pricing and Licensing Strategies For Growth In the Cloud and on the Ground Jim Geisman Software Pricing Partners, Inc.
- 2. Introduction Software Pricing Partners •Unique focus since 1987 – Pricing and business models – Software-based offerings – Vendor-side, B2B clients •Practice areas – Value-Driven Pricing – Value-Based Selling – Strategic Discounting •Project results – Enhance value from products & services – Improve financial performance – Increase sales effectiveness
- 3. This Morning •Why “good” pricing and licensing matters •How licensing and pricing landscape is changing •Some things you may need to do
- 4. Why Customers Buy Does what is needed Offering Works in my situation Offering is good value Competition Preferable to known alternatives Acceptable risk Decision-making Economics, TCO Perceived value Funding available Buying ISV is trustworthy Painless process Responsive Channel Convenient Reliable
- 5. Getting Customers to Buy •License Delivery Model – Entitlement – Fulfillment – Systems – Integration •Pricing Model – Value metric – Packaging and licensing – Scheduled discounts – List prices – “Deal” prices
- 6. Getting-Paid-Fairly Processes Deliverables Entitlement PricePricing Deal Fulfill Details Order List Prices Entry Scheduled Discounts Packaging & Licensing Invoice Value Metric Financials
- 7. Pricing and License Delivery Models Impact on Why Customers Buy g in l iv er y ric de P o el del D o M M Does what is needed Offering Works in my situation Offering is good value Competition Preferable to known alternatives Acceptable risk Decision-making Economics, TCO Perceived value Funding available Buying ISV is trustworthy Painless process Responsive Channel Convenient Reliable
- 8. Topics •Why Customers Buy •Trends and Vendor Impact •Pricing Models •Summary / Q&A
- 9. Trends and Vendor Impact Major Trends •Web is everywhere •Virtualization increasing •Emerging revenue models •Commoditization continues
- 10. Trends and Vendor Impact Web Everywhere •Web is everywhere – More web apps •Simple pricing – B2C influencing B2B •Bite-sized packaging – Customer expectations •Usability influences value •Virtualization increasing •Easy to try / buy / use •Emerging revenue models •Commoditization continues
- 11. Trends and Vendor Impact Virtualization Increasing •Web is everywhere •Virtualization increasing – Use is accelerating – Hardware less important •App tracking harder – Clouds-in-clouds •Hardware-based metrics harder to use •Usage data available •Emerging revenue models •Hosted model more popular •Commoditization continues
- 12. Trends and Vendor Impact Revenue Models •Web is everywhere •Virtualization increasing •Emerging revenue models – Perpetual under fire •Payment options – Subscription rising •Pay for actual use – Slow ramp-up •Pricing “latency” •Commoditization continues •Lower price points
- 13. Trends and Vendor Impact Commoditization Continues •Web is everywhere •Virtualization increasing •Emerging revenue models •Commoditization continues – Low entry cost – Tech availability •Increased competition – Short lifecycles •More me-too products •Agility is critical •Less room for error
- 14. Trends and Vendor Impact Impact Smaller chunks Offering On-demand, as needed Price-focused Competition Even more features Economics, TCO Decision-making Perceived value More self-service Buying Easy to try and scale Web is key Channel Less outside sales
- 15. Trends and Vendor Impact Build Strong Delivery Model Smaller chunks Offering On-demand, as needed License Delivery Model Requirements Price-focused Competition Even more features •Track packaging and features •Manage multiple products Economics, TCO Decision-making Perceived value •Create and manage editions Buying More self-service •Multiple fulfillment models Easy to try and scale •Customer self-service Web is key Channel Less outside sales •Ease-of-administration •Ability to change rapidly •Financial and billing integration
- 16. Trends and Vendor Impact Build Strong Pricing Model Smaller chunks Offering On-demand, as needed Pricing Model Requirements Price-focused Competition Even more features •Focus on overall “offering” Economics, TCO •Charge for value created Decision-making Perceived value •Simple packaging Buying More self-service Easy to try and scale •Discounting framework •Price levels in line with value Web is key Channel Less outside sales •Policy-driven discounts •Multiple payment options
- 17. Topics •Why Customers Buy •Trends and Vendor Impact •Pricing Model •Summary / Q&A
- 18. Many Pricing Models Full custom 99 cent app Flat rate Freemium Perpetual, subscription Multi-tier packages Per-user, per-click CPU power
- 19. Many Pricing Models Elements X Full custom 99 cent app Flat rate Price Pricing Deal Freemium Details List Prices Perpetual, subscription Scheduled Discounts Multi-tier packages Packaging & Licensing Value Metric Per-user, per-click CPU power
- 20. Pricing Model Price Pricing Deal Price Details Details List Prices List Prices Scheduled Discounts Packaging & Licensing Price Packaging & Licensing Structure Value Metric Value Metric
- 21. Developing a Pricing Model - Structure Value Metric Value Metric Focus on overall •Scale with value delivered “offering” •Relate to customer business Charge for value created •Uniform across products •Easy to estimate Simple packaging •Easy to measure, monitor use Discounting •Unambiguous framework Price levels in line with value Price Pricing Deal Details List Prices Policy-driven Scheduled Discounts discounts Packaging & Licensing Multiple payment Value Metric options
- 22. Metric Example
- 23. Metric Example
- 24. Developing a Pricing Model - Structure Licensing & Packaging Licensing & Packaging Focus on overall •Make choices easy, obvious “offering” •“Reasonable” value steps Charge for value •Peg to use cases, segments created •Smooth upgrade / upsell path Simple packaging •Payment equivalence Discounting framework Price Pricing Deal Price levels in line Details List Prices with value Scheduled Discounts Policy-driven discounts Packaging & Licensing Value Metric Multiple payment options
- 25. Package for Use / Value
- 26. Developing a Pricing Model - Structure Scheduled Discounts Scheduled Discounts Focus on overall •Standard discounts “offering” •Qualified customers get discounts Charge for value •Focused on customer behavior created •Logical Simple packaging Discounting framework Price levels in line with value Price Pricing Deal Details List Prices Policy-driven Scheduled Discounts discounts Packaging & Licensing Multiple payment Value Metric options
- 27. Scheduled Discounts •Introductory – Focus on new product •New customer – Attract new accounts •Bundle – Increase transaction value •Upgrade – Trade-up, upsell •Loyalty – Reduce churn •Segment focused – Industry, customer type
- 28. Developing a Pricing Model - Details List Prices List Prices Focus on overall •Economic value delivered drives price levels “offering” •Competition, perception a moderating influence Charge for value created •Covering costs is a sanity check •Price points, packaging, discounting must fit Simple packaging together Discounting framework Price levels in line Price Pricing Deal with value Details List Prices Policy-driven Scheduled Discounts discounts Packaging & Licensing Multiple payment Value Metric options
- 29. List Prices and Steps
- 30. Developing a Pricing Model - Details Deal Pricing Deal Prices Focus on overall •Adhoc / negotiated + scheduled “offering” •Couple with sales comp Charge for value •Develop policies to standardize responses created •Negotiation capability and capacity Simple packaging Discounting framework Price levels in line Deal Pricing Price Details with value List Prices Policy-driven Scheduled Discounts discounts Packaging & Licensing Multiple payment Value Metric options
- 32. Topics •Why Customers Buy •Trends and Vendor Impact •Pricing Models •Summary / Q&A
- 33. Summary Align Processes AND Systems Deliverables Entitlement PricePricing Deal Fulfill Details Order List Prices Entry Scheduled Discounts Packaging & Licensing Invoice Value Metric Financials
- 34. Summary Pricing Model Must Fit Business Model Attractive Acquire Offering Customers Generate Visibility Margin Price Details Price Finance Structure Satisfy Growth Customers Upsell Expand More User Base Improve product
- 35. Summary Common Issues •License delivery and pricing models – Key to success – Influences growth rate – Affects cash flow •Hard to develop, change, administer – Plan, do, improve – A process… …Not an event •Friction points – Longer sales cycle • Aggravate discounts – Slow / inaccurate fulfillment • Low customer satisfaction – Inefficient operations • Financial impact
- 36. Summary Respond to Market Trends Smaller chunks Offering On-demand, as needed Price-focused Competition Even more features Economics, TCO Decision-making Perceived value More self-service Buying Easy to try and scale Web is key Channel Less outside sales