Product pricing is not always straightforward: You must evaluate many costs when bringing new products to market, especially with “greenfield” opportunities — projects which aren’t constrained by prior efforts.
Pricing components can include product development cost, marketing cost, support cost, sales, operations, and competitor pricing. Lastly, there has to be profit, which is not unreasonable when a business wants to stay in business.
If you are a user of business software applications, then you must weigh the opportunity cost of not using the software and how it might impact you.
Essentially, if you decide not to buy a product, what is the cost to your business? Is that cost higher or lower in the long run? Will you lose potential sales? Will your business grow or will it remain in its current state? These are serious questions to ask when evaluating a software purchase.
Now, let’s say you decide to buy the product. What is the intrinsic value you will receive? Do you have a marginal utility defined for you or the business? Is price the only aspect you consider vs. potential improved business efficiencies? For example, the time saved to complete new tasks as you can now perform them while away from the office by using an application on the iPhone? Or how about using a Web service on a public kiosk while at an airport?
So what brought this article about? Essentially, much of my thought process came to light recently when a customer asked me to compare Customer Relations Management (CRM) solutions from Salesforce.com, Highrise (37 Signals), Marketcircle (makers of Daylite and Daylite Touch) and Ntractive (makers of Elements SBM).
As part of the research, I was weighing features, price, iPhone compatibility, and more. I had to convince my customer that pricing was not the key element. Quality of service combined with marginal utility would help them make the right purchase decision. I then came across a post in the Marketcircle forums which caused some additional thinking around the emotion of existing customers and how it can be another component in deciding overall value.
Ultimately, the right choice was made in purchasing software for my customer. However, that choice was based upon facts, the merits of the software solution and lastly, the price.
And you, dear reader? How do you decide the value? What process do you take when making software purchase decisions? Please share in the comments below.
[Matthew Bookspan is a freelance writer and product management executive who brings 18 years of organizational management and software development experience in industries ranging from consumer software, enterprise software, Internet applications and video games.]