Product Management :: Product Marketing

02 March, 2021

Signs that your Product Pricing Strategy isn’t Working

My thoughts on Software Pricing's blog about the Signs your Pricing Strategy isn't working.

1. A customer base littered with bespoke deals.

The main problem usually encountered is that there isn't (much of) a discounting policy or it isn't adhered to. When I worked at NeuStar, there was a solid discounting policy AND a robust methodology to go beyond it.

"Special deals" had to be approved not by sales management, but by the product board. This mechanism really did account for the revenue / cost / profitability for the whole customer lifecycle.

2. Purchase options that include unlimited, or “all-you-can-eat” use.

Hmm, unlimited deals should be used when the value of the propositions is too complex for the customer and the vendor to justify, but everyone knows there's significant value. Within reason, as long as costs / burden don't torpedo profit margins, it is entirely valid.

Obviously, it is easier to make this decision when the variable cost of more consumption is tiny.

Fair use policies (whether formal or informal) need to be implemented so that costly abuse of unlimited can be contained. For example, 'burst usage' when greater utilisation is permitted but within reason (eg to a limit or within a period).

3. Prices that don’t account for customers’ varied budget cycles.

Simple statement, but the ripple back of this issue can be massive.

Let's say your customers get paid on a project-basis ie on completion of milestones. As a customer, you'd like to pay your suppliers when you get paid. As a vendor, if income can be guaranteed, this may be acceptable.

If however, the revenue is exposed to risk, this may not be acceptable to either party. For example, the construction industry is prone to delays or changes. As a concrete vendor, payment on project completion is unlikely to be acceptable.

In the software sector, does this change how your product is priced (yes!) or delivered (likely) or built (possibly)?


4. Enacting pricing changes without modeling the impact on legacy and net new revenues.

Oh, SO important!

A company releases a new product version that is supposed to cannibalise the existing product. They anticipate that all existing customers will diligently glide over to the new product without churn. 

Oh, how wrong! Any change in product or pricing can lead to re-evaluation of the proposition and the possibility of churn. Please see my work for CDK Global for exactly this problem/

5. Complex or confusing pricing

Value-based pricing is great in theory, but if your product has multiple and diverse use cases, then the complexity of pricing appropriately becomes far too difficult to support. As a result of the practical decision to simplify pricing models, your target market may be sliced to a smaller size – never a palatable proposition, but sometimes mandatory to simplify all sorts of problems, not just in sales, but in product development and delivery and branding.

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