![]() Often, willingness to pay will be estimated at the industry level. That was our experience at Software Pricing Partners as well, so we no longer use them. Many studies have found such techniques to be inaccurate and misleading. Figuring out what the price points are, companies may put too much credence in unreliable inputs, such as what customers say they’re willing to pay (usually lower than what they actually will pay), as well as unproven data algorithms. ![]() When you understand this, you’ll see opportunities to influence customer perception of value, build it over time and hold it steady amidst competitors’ actions and market change.Īnother problem with a value-based pricing strategy is that it can degenerate into an almost sole focus on willingness to pay. A more insightful, reliable approach looks also at how customers use software to derive value (and create value for their customers as the next link in the value chain). It’s an especially good approach for SaaS, where to some extent retaining subscribers requires delivering a stream of added value over time.Ī limitation of a value-based pricing strategy is that efforts to understand customers may never go beyond perceptions, which are subjective and can shift in response to external factors such as new competitive products entering the market. A strength of this approach is that it forces you to research how customers perceive your product, rather than being overly rooted in how your organization sees things. Value-based pricing is based on the customers’ perceived value that your software will contribute to their business. ![]() It’s a practical approach for implementing the ideal pricing method into operational reality-it’s how you walk the talk of customer centricity. There is a way to merge these pricing strategies, and keep strategy and execution fixed on customers, never sliding off that center. Because of problems in pricing strategy creation and execution, these pricing methods can end up being unfair to software buyers and produce less profitable results than they should for software sellers. But first, let me say that in practice both a value-based pricing strategy and needs-based pricing strategy often veer away from customer centricity. In this blog, I’ll explain and contrast these two approaches to B2B software pricing. That’s a more customer-centric approach than basing software pricing on, say, what competitors are charging. Value-based pricing and needs-based pricing are similar, in that they’re both grounded in attempts to understand customers. Which type of B2B software pricing strategy is more customer-centric, fair to buyers, and profitable for sellers? ![]()
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