

Ask HN: Pricing models, stand-alone software vs. enterprise what works? - elblanco

My company is currently (or should I say typically) reviewing pricing for our product. We're too small to compete against our largest (and much more successful) competitor directly, but we've historically priced to stay about 20% below them. They gear their offering as an enterprise rollout typically costing in the millions, while we pitch to stand-alone users. Obviously it's hard to compete well in this arena.<p>We're looking at repositioning ourselves towards the other end of the market, against other stand-alone vendors. But our pricing is about 2x theirs even though we offer about 2x the features. There are many more vendors in this space, and one defacto standard vendor that looks to be on its way out.<p>We've gained pretty good traction in both areas, but we feel we're getting close to maximizing this "in-between market areas" space and want to expand. It's obvious to us right now, with the way the market is, that competing against our enterprise competitor more directly will just result in us getting squashed like a bug (they don't do very many acquisitions and out technology wouldn't integrate easily into their portfolio anyways). So it looks like we'll be fighting down market.<p>Since we're priced well over those competitors, we have three choices.<p>1) Pitch what we have, and hope our feature delta carries the day. We have evidence though that we've lost a few bids to cheaper, but less capable competitors.<p>2) Lower the price on what we have to directly compete. But we risk cases where we might have made $100 to instead make $50 without guaranteeing at least a 200% increase in sales to make up the difference. Plus the perceived "premium" value for our product potentially goes out the window and we end up head to head against the wrong competitors.<p>3) Build a new "lite" version of the software (for minimal effort, just turn off some features) and sell that as a new SKU. This helps us directly compete down market, while still being able to offer a flagship to our upmarket folks. This is the option that currently has the most traction. But it risks the same problems as option 2, while also increasing the complexity of our offerings (and all the stuff that goes with that).<p>Anybody have experience with this kind of thing? How'd it work out? Any tips, ideas?<p>(sorry I can't talk directly about my company or the space we're in, it might make sense to model us like an MS-Office competitor. Except that the large enterprise competitor is Google Docs, and we are also competing against MS-Office, iWorks, Star Office, Open Office etc. and everybody charges for their software...there's no advertising revenue in our space. The competitive landscape is almost exactly like that.)
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pedalpete
Without knowing your business, or the environment you are in, it is difficult
to really make a recommendation here.

I would recommend picking-up the book Crossing the Chasm or Inside the
Tornado, both by Geoffrey A. Moore, if you haven't already looked at them.

You mention that you've gained pretty good traction both and you're getting
close to mazimizing the 'in-between market'. I suspect you are saying that you
aren't finding as many premium stand-alone customers, and aren't finding
yourself jumping up to the enterprise purchaser level.

Is that correct?

By the sounds of things, you've got the premium product in the stand-alone
purchase, and with the right marketing, maybe you could be the defacto
purchase in that market.

At the dollar ranges you are talking about, are businesses really cost
sensitive? If your product is truly that much better than competitors, you
should be able to up sell the extra $50.

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elblanco
Thanks for the reply.

Actually, dollar ranges in our space are more in the $5k-20k per seat range.
"Bargains" are in the $5k range and "premium" starts at around $10k per seat
(that's for the stand-alone market). It's definitely a high dollar, low volume
small market, maybe no more than 20,000 total seats in the entire market space
(at the way upper end) in the U.S. and maybe double that globally. For how we
are used by our customers, the Office Productivity software space is the
closest analogue. But because the market size is so small, lowering our price
too much might get us fast market share, but kill us in the long run (plus our
sales cycles are hideously long, 6-12 months, and high touch, mostly because
of the nature of our customers). We own about 2% of the market right now,
which is enough to keep my small shop of about a dozen people fed. We'd like
to double our revenue in the next year.

I think that we are certainly starting to hit against the bottom of the barrel
in terms of premium standalone customers -- or at least we will maybe in the
next year. Most of those I'd say are early adopters who don't mind paying
higher dollar for a solution that does what they want. But like any industry,
early adopters are a very small part of the pyramid.

What I think is distracting our pricing model is that the enterprise pricing
is totally different. The ranges there are $3k-$17k per seat but at seat
volumes of 50 or more, but the current industry leader is at the top of that
scale while the industry leader for stand-alone sales is in the middle of the
range. So we've been targeting that per-seat dollar value and undercutting it
as part of our strategy to capture lower volume customers. But like I said, it
appears we're starting to run out of room for those customers, we've either
captured them, or they went with a cheaper stand-alone competitor.

The book recommendations are great and new to me, I'll definitely look into
picking those up.

