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Software pricing

In Eric Sink's latest article, http://msdn.microsoft.com/library/default.asp?url=/library/en-us/dnsoftware/html/software08052004.asp , he advises to not run sales, as the customer is trained to just wait for the sales, and to never buy at original price.  I find this interesting, simply because the only place I've heard that before is a friend of mine that was a manager at Chik-Fil-A.  He said they never run specials on their sandwiches, because then people will think it's really just worth 99 cents, instead of $2.65 or whatever.

nathan
Tuesday, August 17, 2004

I think that this largely depends on the need for a product.  If I'm driving, I'm hungry, I haven't seen a resturaunt in 135 miles, when I happen upon a Chic-Filet I'm not going to say to myself, "You know, their sandwhiches are overpriced by a dollar thirty-five, I guess I'll keep driving to find another resturaunt".

By the same token, if I desperately need bug-tracking software because I'm losing money by not having it, I'm not going to say I'll wait three months to purchase it when it goes on sale.

On the other hand, when I'm looking for a plasma television that I have nothing but a desire for, I'm willing to wait until it goes on sale.

The only truth to the statement that I've seen is during the holiday shopping season.  When Hecht's or Macy's runs a 20% off coupon every weekend, you'd be a fool to buy anything during the week, and thus people don't.  It's determined that buying something during the week is simply feeding the stores profit margin, and unless there is extreme risk of the item selling out by the weekend (the holiday's new hot must-have toy) everyone waits.

Elephant
Tuesday, August 17, 2004

Chick-fil-a is rather tasty, but since I usually only get to the mall on sundays, the day they are closed, it doesn't matter if they are free, 99 cents or 200 dollars. The only time I get to the mall during the week is about once every 6 months, when we need some technical book in a hurry from borders or bn.

It is kinda hard to be a customer if the company won't sell to you...

Peter
Tuesday, August 17, 2004

Nagle/Holden's book on pricing, which I think is fun for anyone to read, talks about these problems of frequent "dealing." It doesn't talk about software that much, but I think problems might be amplified for software, since people notice it costs marginally nothing to distribute and are suspicious of the industry's billionaires.

Tayssir John Gabbour
Tuesday, August 17, 2004

Sam Walton built an empire on everyday low pricing.

If you have a product and then offer a 2 for 1 or any special 'sale' offering you end up:
1) alienating current customers (especially those that recently purchased)
2) deferring sales for price conscious customers (if they are aware of the sales and there is not currently a sale).

Charge a fair price for your products and stick to it.  If you need to meet price points do it by dropping features and creating line extensions.  Yes, the evil line extension is actually a good thing in software, it allows you to charge IBM $10,000 / license and Joe's Computer Emporium $100 for essentially the same product.

Pete
Tuesday, August 17, 2004


Eric opines:

Line extension is still bad in software.

Having multiple tiers is not the same thing as line extension.

Eric Sink
Tuesday, August 17, 2004

I disagree.  Much the same way low fat Oreo cookies are a line extension, and a rather poor one at that (do you mean those ‘dunklicious’ Oreo cookies are full of artery clogging fatty lard?), a lite software product is a line extension.  Focusing on the benefit of a line extensions new attribute often provides some implicit detriment to the core product but with software when you take something away it does not hurt the core product in the same way.

There are more egregious cases of line extensions for example Vault as a source control solution and VaultBugz for bug tracking, VaultSupport for customer support etc. but it does not change the fact that VaultLite is a line extension.

Pete
Tuesday, August 17, 2004

I suppose it's just a difference of terminology.  I define "line extension" as applying the brand from one product to another product which is essentially unrelated.  Ries and Trout seem to use this definition.  Call it whatever you want, we can probably agree that it's not usually a good idea.

Establishing multiple tiers for a software product is different.  It allows us to charge different prices to different people even though their getting essentially the same product.  Call it whatever you want, we can probably agree that it's often a good idea.

If SourceGear released Vault Lite Edition, a source control tool with less features, that would be a tier strategy.

If SourceGear released Vault Safety Edition, a new virus checker, that would be line extension.

Eric Sink
Tuesday, August 17, 2004

Elephant, no matter what you think, special prices really do what Eric says.
Not that I am an expert, but Philip Kotler is. And he says that too.

Boris Yankov
Wednesday, August 18, 2004

Eric, actually even Valut Lite Edition may harm your brand.

Suppose that you've won a 'word' in the customer's mind. If for some reason the Lite version is weaker in it, this may weaken the customer's perception for your Pro version too.

So its not totally impossible to do damage with Lite/Pro versions. :)

Boris Yankov
Wednesday, August 18, 2004

Agreed -- I wasn't saying that "Vault Lite" was a good idea.  I said multiple tiers are "often" a good idea.

I was merely saying that I don't consider multiple tiers to be line extension.

There is more than one way to harm a brand.

Eric Sink
Wednesday, August 18, 2004

Classic examples regarding problem extensions referenced in marketing books include coke / diet coke (instead of a new brand or using tab which was already positioned for the diet market), diet or low fat versions of cookies / crackers etc (instead of a new brand - think snackwells).

Their point is that instead of creating vault lite you create GarageSource which fits and owns that market.  A great example in software is adobe photoshop and adobe photoshop elements.  This is a bad software line extension IMHO.

What would have happened if elements had its own brand?

For tiers vs line extensions if you take a product and limit license usage (x users, y sites / servers) you are not doing harm but when you take a product and start crippling it and using the same brand this is a line extension and not a good idea.

Pete
Wednesday, August 18, 2004

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