How We Can Help
With a heritage of cost based and feature based pricing, pricing models at many tech companies’ have become complex. While it is admirable to cover costs and have clients pay for valuable features, the complexity has resulted in several unintended consequences.
- The sales process is long and the cost of negotiations is high.
- Customers and sales focus on negotiating details instead of emphasizing the value delivered.
- Value propositions are unclear and not well communicated, and so sales are lost and value capture is low.
- Discretionary discounting is high.
- Too much sales time is spent configuring offerings and prices.
- Administrative costs of pricing and contract management are high.
There is a better way to approach complex pricing, and it begins with a focus on value, and communicating value to customers. Look at it this way. Features, functions and services come and go. An innovation today is tomorrow’s legacy offering, but the underlying principles of value delivered and outcomes achieved change much more slowly.
A shift to value based pricing is a shift to pricing based on the underlying linkage of your offerings to your customers’ success. Instead of being part of their cost stream, you become part of their success stream. The result is pricing strategies that are more durable and defensible. We call the process Price-Offer Design, an integrated approach to developing offerings and pricing strategies targeted to groups of customers with common value drivers. The result is offerings that are easy to understand with increased value propositions and price levels and structures that make sense to customers.
Prices are communicated to sales through a four part price menu that not only simplifies the process of configuring offerings for customers, but also facilitates value for price tradeoffs. The menu empowers sales in negotiations while simultaneously increasing pricing control. The menu makes it easier for sales to communicate value and reduces the need for discretionary discounting.