Is Software Pricing A Science Or An Art?

I’ve been with Forrester for just over a month now. It’s great to be involved with our clients and communities and to be helping businesses across the world evaluate the quality of software suppliers' proposals from a commercial perspective (e.g., is this a great deal or can the supplier do better?). One of the best parts of being at Forrester now is seeing the continuation of the work I did prior to joining Forrester — advising businesses on software contract and pricing negotiations. One thing I noticed then, and continue to hear about now, is the reluctance of software suppliers like IBM, BMC, CA, and Compuware to publish meaningful list prices or to explain how their price book worked or how discounts had been determined. Time and again I had to ask suppliers to un-bundle prices and confirm the basis for the net prices they were proposing. Does anyone else agree with me that pricing should be clear and transparent and not a black art?  

Here’s an example of an “art” that should be science: list pricing. While it’s logical to think list pricing is the same foundation upon which all bids are built, that’s actually not the case. Often, I found that my clients were being quoted “list pricing” that was different. Isn’t list pricing supposed to be the same by definition? Which is why you may with good reason doubt the validity of a list price or the competitiveness of a discount that you’re being offered by a software supplier. It’s why I love my work, and why you should make sure you get third-party validation of your deals.

How you do validate your software vendors’ list pricing and proposed discounts?

Comments

Software pricing

I've always felt in negotiations with large software vendors, that the price is always based on how much the vendor thinks that the client can afford.
I think that this is why low cost freeware / freemium software products manage to compete effectively with best of breed (but expensive products).

Software pricing

I've certainly had many experiences where the vendors have initially priced their products based not on any price list but on what's the maximum that they think they can get away with in terms of what they believe the client can afford/justify.

Software Pricing

List prices can change, as with Oracle's price increases last year. Most vendors have multiple pricing models....so it's entirely possible for software to cost different amounts under different models.

One pricing model is clearly evil from a customer perspective....anything based on the processor core count is bad because the cost will double about every two years....and you won't get hardly any more value out of it & it might not even run any faster. Examples would be Oracle's CPU licensing or IBM's PVU scheme. From a vendor's standpoint it's a gold mine. How'd you like to buy a car w/ a 4 cylinder engine, blow out the engine & replace it w/ a v8 and Oracle says you need to pay me again for the whole car? Processor core licensing is pure evil, just say no.

Software pricing

I agree. Core count pricing is a money maker for the vendors. Without lifting a finger they can see their revenues grow as technology is refreshed. If you haven't negotiated this pricing model away when you first signed the agreement, then keep a close eye via asset management to ensure hardware refreshes don't breach your software contract pricing rules. If the tech refresh can't be avoided, then negotiate early with any affected software suppliers and try to bundle the extra licenses into either an annual support renewal negotiation or together with any other new acquisitions from that same supplier to maximise your negotiation leverage.