5 Pitfalls to Avoid when Value Pricing Software

We had a client many years ago that was struggling with how to bring a new software offering to market, specifically how to price it.  Their core product was equipment used in manufacturing processes and the associated parts and accessories.  The equipment was a large capital purchase for their customers, but they made most of their money of the ongoing purchase of parts and accessories (think razor blades).  Their new software would help their customers design and optimize their manufacturing process and choose the best mix of parts and accessories.  The challenge lay in the fact that, although the software would create tremendous value for their customers, it had the unfortunate side effect of frequently reducing the number of parts and accessories that they needed to buy. The leadership team was stuck with some wanting to postpone the software release indefinitely and others wanting to price it very high to make up for the potential lost parts revenue – and no one really thinking about customer value.

Software pricing can be complicated and confusing, but it need not be a reason to panic – even for organizations that are more comfortable pricing hardware. The primary thing to keep in mind is that all the rules of customer value still apply. Below are several of the pitfalls that we see customer fall into when pricing software, and some thoughts on how to avoid them.

How Does Inflation Impact the Value You Deliver?

Inflation is hitting every sector of the economy, and almost every company we talk to is grappling with raising prices to compensate for their rising costs. Invariably someone will say, “Raising prices is value pricing, right?” Our answer is, not really. Although value pricing could lead to an increase in price, it could also lead to holding price or even lowering price.

There are two key questions. How does inflation impact the value you deliver? And, how do you best implement the revised pricing?