Pricing is one of the most important elements of a client’s business. A relatively small 1% improvement in price can deliver as much as 12% improvement in profitability. Our industry is obsessed with data, automation, in-sourcing – anything to try and cope with the squeeze clients are facing from competitors and challenges in the economy. And yet rarely as an industry do we ever consider the impact of price.
People’s willingness to pay for a service or product has never been under more pressure. Technology is rapidly evolving and traditional selling models are changing beyond recognition. It has never been more important for a business to think thoroughly and holistically about pricing.
Particularly in B2B, pricing is under scrutiny more than ever, and effective pricing strategies have never been more relevant. And not only that – have the capability to dramatically improve clients’ profitability and market share.
This year Pricing Solutions – now part of the iris network – helped a $200+m US enterprise transform how it priced its software solutions – creating a subscription licensing pricing strategy, and even identifying new value opportunities.
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Building a Subscription Licensing Pricing Strategy Case Study: Software & Hardware
At first, the client developed a subscription model for their new modules that failed to attract new customers or interest from the VARs channel or existing customers. They needed a solution that would be attractive to customers and help monetize the investment in new “thin-client/mobile” innovations. To develop an effective pricing strategy, Pricing Solutions needed to answer the following questions:
• Which customer segments were interested in a subscription model?
• What was the best value-based subscription pricing model? Should it be offered alone or in conjunction with the existing perpetual model?
• What were the financial implications of the new subscription pricing model?
• How to successfully migrate existing customers and sell to new customers?
Building a Solution that Fits
Pricing Solutions created a 5-step project plan that delivered a high impact pricing strategy within 5 months of project kickoff.
1. Pre-Work & Data Gathering
Competitive insights were gathered to provide context to existing data and help develop key data insights. Additionally, 10 internal interviews were conducted to understand product assortment and customers/VARs in-depth.
2. Pricing & Offer Structure Hypothesis
Leveraging transactional data and competitive assessment, Pricing Solutions conducted a 1-day workshop with client’s employees to review existing information. Based on feedback from the group, preliminary hypotheses on customers, pricing models and metrics were developed.
3. Market Research
To better understand implications of existing pricing models, strategy and structure, over 30 interviews with Customer, VARs & Partners were conducted.
4.Finalize Pricing Strategy
Price structure, metric and discounting policies were finalized. The team built a customer migration model and assessed the financial impact of the change to minimize the impact on current revenue stream.
Finally, Pricing Solutions provided internal training and assisted the client in developing marketing collateral. This aligned the team internally and ensured a successful transition.
Pricing Solutions created and delivered a new subscription pricing strategy and migration plan that included:
• A migration strategy and tracking metrics for 4 value segments.
• A 3-, 5- and 7- year scenario forecast allowing client ability to adjust over time.
• The ability to adjust 4 key inputs: breakeven year, migration path, discount rates/fences & attrition rate.
In addition, the migration tool identified incremental revenue opportunities from migrating legacy customers on unsupported systems who wanted to adopt “thin-client” and mobile innovations.