There are so many in software development who are fearful of their competition. So much so in fact that they believe price rising is something that is going to scare customers away to another business.
The reality however is that the thing which is losing them money and customers is their pricing structure, at least that is the view of expert Josh Melick who has recently published a great article on this topic. Josh believes that the key component missing from these pricing structures is what he calls the third dimension, which is a time limit on rights to the product. This offers a range of benefits to the consumer and the business, and here is why this, among other strategies, is the best way of raising pricing.
Right now there are many companies who will offer usage of their software to be paid on a monthly basis. The notion is that the contract can be stopped at any time, with a month’s notice given. The problem with this however is that there is never a stopping point, which is what Josh’s plan would create. If however a customer finished a 12 month plan and then had a renewal price which was higher, they would be far more accepting of this than a plan which all of a sudden shot up in price.
Transparency For The Customer
Contrary to what many believe, a price hike isn’t what will put the customer off. What the customer doesn’t want to see is a sudden price hike which they couldn’t prepare for, or a hike which is far beyond what they believe to be acceptable. If however companies follow what Josh is saying about having a set period of time for use of the software, they will then be able to give customers a clear and transparent idea of when prices will rise. If a customer knows that at the end of the year they are looking at a 7% price rise, they can prepare for this and they will usually be on board with this kind of plan, if of course they are enjoying the product.
This anticipation from the customer regarding the price hike can in fact be used in the company’s favor, as it lends itself to a promotional upsell. For example if you have a client who is on your bronze plan, you can offer them an upgrade to silver with a smaller price hike. Instead of a 7% increase for example, you could offer them the chance to increase their membership with just a 5% hitch on the previous year. This will of course make your customer happy and it also gives the business the chance to upgrade more members.
Josh’s price structure really does lend itself towards being able to increase prices that fall in line with the increase of business costs, without scaring away those valuable customers which businesses depend on.