Pricing topics round up

26 08 2009

It’s time to look back at the ground we’ve covered in order to establish the road ahead.  In a series of strategy posts, I talked about the fact that if you don’t know where you’re going, any road will get you there.  I also said it was important to have a sense of purpose and continue to review the goals that you started with in order to see if they’ve changed.

Let’s review what has been covered so that readers can easily catch up with anything they’ve missed and also to plot the next post.

Human behavior

It’s only natural to look for the best deal.  That’s exactly what happens when you get down to brass tacks with any business negotiation.  Humans treat everything with lots of variables as a game.  We like to play with graphic equalizers because we think we can make our music sound better when we have a greater degree of control over the gain of each frequency band.

It turns out that in reality, music can actually sound worse when (untrained) people play with the equalizer.  Additionally, for each type of music, and in some cases, for each song, the graphic equalizer should probably have different settings.

Some manufacturers have figured out that a “Bass” and “Treble” knob is actually a selling point for sales people interacting with the average consumer because it is less confusing.  Too much choice can paralyze decision makers or, at worse, drive them to make poorer choices.

Pricing metrics are a lot like the “two-knob vs. graphic equalizer” debate.  If you give a customer or sales person too many choices in pricing metrics, they may tune one metric and create a bad deal accidentally.  Plus, several combinations of metrics may exist for any and every situation.  That extends sales cycles, creates headaches for contract approval, and makes later upgrades harder for CRM systems and customers alike.

Review: Human nature and software pricing to help play devil’s advocate with your pricing and licensing structure.  Keep perspective about the price list: it’s a sales tool.  Don’t over engineer it.  Let sales do their job

I also claimed that pricing is a blend of art and science, so you may want to review Product management: floor wax or dessert topping?

We talked about metrics

Picking metrics is the single most important part of the price list.  If you can create new metrics, you have a blessing and curse because you may have to first educate customers about how you license before getting into the actual negotiations.  If there are industry accepted metrics, you may have little choice on how to license.

However, metrics will evolve with technology, business needs, or as your customers get promoted through their org chart.  Engineers that buy for one area of the business will have to think differently when they move into a director position on the IT side of the house.  Be prepared to evolve with your environment and market.

What worked 3 years ago may need to evolve to work in today’s market… and you will need to bring your customers along for the ride.

Review: Pricing, metrics and evolution to get some ideas of how things might change for you.  Once you have some perspective, you have to create Pricing and the metrics that matter.

It’s a cycle

Oddly enough, we are almost back to the beginning of the pricing topics with the latest post.  In the beginning I talked about how to put yourself in sales’ and customers’ shoes to validate pricing scenarios.  In the last post I explored some of the subtleties that are baked into your metrics and price lists that can accidentally lead to bad deals for you or the customer (or both).

Review: Pricing metrics and the customers that suboptimize them.

What’s next?

I started out intending to talk about pricing, but as I kept writing, I got down to the symptom that can cause more pricing difficulty than pricing itself: licensing metrics.  Choosing the wrong licensing metric or using arcane, unfamiliar metrics can cause fundamental problems that bundling, packaging, and pricing can’t solve.  But fixing metrics isn’t easy.

In my next post, I plan to cover some of the things to consider when you change your metrics basis and how to prepare for such an exercise.  Wish me luck!

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