Friday, March 05, 2010

Enterprise Software Pricing - how satisfying are current pricing methods?

March 05, 2010

I had written an earlier post on enterprise software pricing strategy - best practices in pricing. In that context, I came across a survey titled 2009 Key Trends in Software Pricing and Licensing Survey (registration required) by Flexera software which is really eye opening.

According to the survey by Flexera Software, "The 2009 survey shows that only 45% of software vendors believe their company’s pricing and licensing strategies are effective or very effective at capturing the value that the software provides to customers. This could mean that the producers have not yet developed a pricing model that has fully captured the complete solution they offer, or that a sizable portion of respondents think they are underpricing the total delivered value of their offerings."  Also in an article titled, Software Pricing: Getting Back to Growth by Accenture, they state that there are three main areas where software vendors are struggling with pricing and one of them is that product managers and marketing managers are hard-pressed to make smart decisions about price setting.  The other two issues that they mention are soaring difficulty of price administration and publishing - how to capture, code, and communicate pricing decisions to internal sales teams and to channel - and in ways that are comprehensible to customers too and the formidable challenges to the mechanics of sales activities - understanding customers' changing requirement in order to sell on value, identifying and planning for conversations with new economic buyers, and much more. 

In that same Accenture article, there is this eye popping statistics: only 31% of the enterprises were satisfied with the pricing strategy of their software providers. The uproar over the maintenance price strategy changes by Oracle and SAP is only a reflection of this one. This article does not differentiate between the discontent caused by the pricing strategy (per user pricing versus processor / core pricing versus revenue based pricing)  and the discontent because of the price.

Accenture white paper suggests these best practices:
  1. Review of core business model in light of the potential impact of new offerings, term licenses, and SaaS components. Look at the total revenue from the customer including license, subscription, services, and maintenance and decide on the packaging, bundling, and pricing schemes.
  2. Standardize pricing approaches (not necessarily pricing strategies) across product lines.  This helps later analysis of each transaction in a standard framework for decision making.
  3. Implement "formula" or rules based pricing to help salespeople construct deals. 
  4. Use pricing applications to enable best-practice pricing.
  5. Focus on organizational improvement. Diffused ownership across product management, product marketing, finance, and sales means nobody is finally accountable. A central pricing group is important.
In my mind, all of Accenture's suggestions are around price execution and does not address all the issues with pricing. I will cover that in another post.

Your thoughts? 

Karthik

    2 comments:

    1. Hi Karthik - thanks for referencing the survey we conducted. We are certainly seeing changes underway in the marketplace. Increasingly, enterprise accounts are seeking usage-based pricing models and many software companies are struggling to figure out what it means and how to respond. We believe we'll continue to see a lot of changes in the areas of software licensing over the next couple of years as a result.

      You and your readers might be interested in our blog that speaks about these issues on a regular basis. It can be found at http://blogs.flexerasoftware.com/ecm/. We would welcome your comments and perspectives there since our goal is to ehance the industry dialog about licensing, entitlement and compliance management.

      Thanks,

      Randy Littleson
      Flexera Software

      ReplyDelete
    2. Randy:
      Thanks for the blog reference. You are covering enterprise software pricing in this blog and that is not covered much in pricing discussions in other forums.
      Karthik

      ReplyDelete