The 5 Pricing Myths Tech Firms Must Overcome Now

Stop leaving money on the table.
Stop leaving money on the table.

When executives in enterprise technology industries think about trying to get a price premium for their products, they often throw in the towel before the fight has begun. Five myths, in particular, have become ingrained and, as a result, many tech firms leave money on the table.

Yet hardware and software suppliers usually have far more pricing flexibility than they realize. Some companies have, in fact, broken through the five self-limiting beliefs described below through deliberate efforts to redesign pricing approaches and sales practices.

1. Our products are commoditized, so we must accept prevailing prices in the market.

Many companies pigeonhole themselves as price takers, believing higher prices or a tougher stance on pricing will cause customers to defect. Price takers overlook a range of other factors that customers care about and that justify a price premium.

A recent Bain & Company survey of 111 purchasing executives of computer hardware, software and services, showed that price is rarely the most important decision factor. Tech customers express stronger preferences for easily integrated, customizable products. As shown in the chart below, survey respondents are willing to pay 8.4% more for better integration with other technical systems, 7.2% more for the ability to customize the product and 7.0% more for ease of use.

2. We can’t respond effectively against new, disruptive business models without jeopardizing our core business.

Many business customers only want to pay for actual results that a product delivers, rather than for potential results. In addition, more customers want to shift capital expenses to operating expenses, reducing the need for large, up-front investments. They’re demanding new price meters – say, software as a service rather than installed on the hard drive, or copiers priced per printed page, rather than per machine. This model allows them to pay for the value they receive, not for capacity they never use.

The key, then, is to tailor the product’s pricing model so it directly addresses a wider set of customers’ needs and priorities. Once the enabling infrastructure is in place to properly implement a new price meter, major changes can be executed swiftly if a company has sufficient market power and authority. Google did this with its App Engine platform for software developers, and so did Adobe when it moved from selling software in a box to all subscription-based pricing. 

NEXT: Giving Away The Store