The voodoo that you do to price software

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Of all the marketing P's, pricing evokes the most emotion across an enterprise. My perspective is in software pricing, a voodoo like process that somehow results in a "price." However, this is not before emotional feedback from all impacted - and that is just about everyone in an organization.

Marketing: Pricing should reside in marketing as part of the marketing mix. Mostly it does, but not without a lot of "marketing" volunteers.
Sales: In their opinion, since they actually develop proposals and talk to users about pricing, they own it and have the most knowledge of it. Marketing? Who needs marketing. Sales will tell us what the price should be, marketing just needs to develop a nice little slick.
Product Development: They want to make sure their "baby" is priced appropriately given all of the hard work and features and functions that are included (even if they are not needed. Hello, Microsoft.)
Accounting/Finance: They are privy to all the costs so they know what we need to generate in revenue to cover the costs and produce an acceptable margin.
CEO: Ultimately it is his/her head on the line if numbers are not met.
Your mother: OK, kidding, but just barely.

So be careful, once the subject of pricing is actually broached, be prepared for a lot of bitter feelings, hurt looks, and fighting over who is right.

Pricing in a recessionary economy

I had an interesting discussion yesterday about pricing strategies in this economy. The discussion involved mergers and pricing power.

We have seen several large scale mergers that have eliminated accounts for many firms. What do you do if you have 2 firms as clients and they merge? You went from 2 clients to now only one client. Let's say Company A and B merge. Both were clients and had similar contracts and populations, around $100k and 2,000 users. They merge and you now have one client paying $100k but potentially servicing 4,000 people. You have now gone from $50/seat to $25/seat. A substantial hit. How do you gain some of that revenue back? Not an easy answer but one that a lot of marketers are faced with today.

Can you raise prices in this environment, especially if a competitor is lowering them? I think you can always raise prices, but you need to market the value first. If you have not proved the value proposition of your product or service you will never have pricing power regardless of the economy.

I believe that both speak to knowing your customers and knowing what their pain points are and how you can relieve this pain. If anyone is looking for a good book on pricing I suggest buying "The Strategy and Tactics of Pricing: A Guide to Growing More Profitably."