How to Beat the Discount Heat

Under pressure to cut your software prices? Here are 17 rules to beat the discount heat

Copyright (c) SoftwareCEO Inc. Reprinted with permission

Introduction

When times are tough — and we don't have to remind you they've been pretty tough in the software industry for at least two years — there's a natural tendency to cut prices.

Sometimes it's a "hard" cut: Some ISVs have sliced their published price sheets by as much as 10%. Another variation is the "soft," or transitory cut: a time-sensitive, blowout special to try to drum up business.

We've received promos of the soft variety from developers willing to slash up to 80% off their retail price — we're not, as Dave Barry would say, making this up — if only we'll order today. A cut of that magnitude hardly deserves to be called soft.

Then, there's the behind-closed-doors cut: You may not announce any discounts publicly, but when it comes to negotiations with a prospect you're trying to turn into a customer, the scalpels come out. We've been there, and we've seen just how far hungry ISVs will bend over.

Okay, so what's the antidote? What can ISVs do to avoid cutting prices?

To get the answers, we turned to our favorite software pricing and licensing guru, Jim Geisman of Software Pricing Partners. Geisman has probably forgotten more about pricing, licensing, and deal negotiation than most of us know — he's that good.

Plus, we checked in with Frank Linsalata, COO of Analytical Graphics (AGI), a software developer headquartered in Malvern, Pa. AGI has worked with Geisman, and has recently revamped its software pricing — some of it upwards.

Here's the advice we gleaned from the two of them; follow these 17 rules, and you should be able to head off most discount disasters.

Discount avoidance rule #1: Don't grasp for a magic number.

"There's no right price, and there's no wrong price," Geisman says. "There's a combination of how the products are structured, how the message is structured, who you're talking to, and the financial terms. It's only when you put all that together that you can arrive at pricing that makes sense for your company and your software."

Discount avoidance rule #2: Zero in on the correct prospects.

Okay, we know that sounds simplistic; who would try to sell to incorrect prospects? Well, the fact is, lots of ISVs do."Make sure you're talking to the right accounts and the right people — those who value what you're selling," Geisman says. "There are lots of things you can do in the sales cycle before you go to price

Note that Geisman did not say you should aim high. Some software sales should indeed try to reach C-level approval, but not all; others may have better luck selling to the champion who will actually use your software.

The key point in Geisman's advice: Find out who truly values what you're selling, and sell to them.

AGI has followed this value-based advice, and it's paid off, Linsalata says: "We realized our value proposition and determined that many of our products were undervalued."

The company has not done across-the-board increases, but has looked at each product for the value it delivers; price increases initiated or planned range from none at all to 15% on core products to 50% on some lower-cost products. "We have not seen price sensitivity," Linsalata says. "Customers have been willing to pay for the value."

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Contents above Copyright (c) SoftwareCEO Inc. Reprinted by permission. Other unauthorized reproduction prohibited.