13 Questions to Ask about the Pricing of Your Software Product

From time to time, product managers should ask themselves questions about the pricing of their product. The best sort of situation would be that the company can raise prices, decrease discounts, and charge for new features with a consequence. If you have that scenario, then congratulations! Otherwise, ask yourself these questions every few months to see if you can make changes to improve the pricing strategy of your product.

Are there still features to add that will increase value or is product innovation becoming less meaningful? Some companies are looking really hard for that magic feature that will change the industry, but sometimes the features that could be added are less meaningful than the company hopes. Sometimes there is simply no magic feature, and the company would benefit more from architectural improvements, operational efficiencies, bug fixing, etc.

For future features, are there any that customers will pay a premium price on? For any future innovation, companies should ask whether this could be a pay feature or product. Venture capitalist-owned firms especially like whitespace.

What would our competitors do if we raised prices? Look at competitors one-by-one and assess. Maybe we don’t understand our competitors at this level. If we don’t, how could we understand them better?

What would our competitors do if we lowered our prices? Would they follow our lead or stay where they are at?

What would our partners and distributors do if we changed our prices? Would we hurt our third party relationships with a pricing change?

What if we ran fewer/smaller promotions? Discount and promotional pricing are not things that high quality brands usually want to do. Can we get out of that habit?

What would we do if one of our competitors raised its prices? Is our pricing strategy based simply upon the competitors’ prices or would their price increase temporarily allow us to gain market share?

What would we do if one of our competitors lowered its prices? Would we have to follow? Could we spin it in our favor?

If we announced a pricing change, would we want to do it well in advance or with little notice? There is a strategy of announcing a price increase with enough time that we can observe its consequences and back out, if necessary. There is also a strategy of allowing little time for competitors to react, so that we can pick up market share on them.

Is the pricing strategy in line with other products in the portfolio? Is there a special policy just for this one product? How will customers take that? Might they see that this product is becoming more innovative because of the price increase or that it is maintenance mode due to a discount?

Would a pricing change affect other products in the portfolio? Any new pricing should have significant analysis on how the change affects the portfolio.

Is bundling of products and services making it too difficult to change prices of an individual product? Can we raise the price of fries without affecting the price of the Happy Meal?

Do our internal folks understand our pricing? In some companies, pricing is by committee. In some, it is done by asking one person. Is there ownership of pricing by someone? What is the sales/marketing process for getting pricing information?

 

For more information on product management, read the Product Guy Daily. I publish it every morning.

2 Responses to 13 Questions to Ask about the Pricing of Your Software Product

  1. Pingback: Software Marketing Tweetables - 25 March 2013 | Smart Software Marketing

  2. Great questions, and difficult to ask/answer often, because they requires a hard look at your market position. Unless you are the run away market leader, the answers to these questions may cause some heartburn.

    In particular, I like the “What would you do if your competitor did X” where X is raise or lower price. A lot more difficult to answer than it appears from the outside, and you will likely have different warring factions in the building on how to respond.

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