Here’s a question from one of my most loyal readers.
“Mark, Some companies sell complex products (i.e. requiring both implementation services as well as the product) yet they sell and negotiate the product and service deals separately. I suggest it is impractical for these companies to effectively adopt value pricing unless they combine these deals – do you agree? Lack of this deal integration may even put a vendor at a competitive disadvantage.
“My rationale is that a customer can only receive value once a product is in use. There is no value from having a product yet being unable to make use of it. The delivery of an implementation/customization service is critical but just makes the product ready for use by the customer and prepares the customer to receive value from the product. On its own, the service provides relatively little value, other than helping the customer understand how to use the product. Therefore, customers can only receive full value once they have received both the product AND the service. Thoughts? I would also be interested in what others have to say about this. “
I think you’re close to the right answer. The product has no value without implementation so both must be present to satisfy the client. One logical answer is to bundle everything together and sell it as one solution at one price. An even more logical solution is to sell a subscription based on their value and include the implementation services.
One reason to price them separately is maybe the client wants to shop around for one piece of the solution. If you only give them a bundled price, they may not go with you because they wanted to buy one piece of the solution from their favorite vendor. That may also be a good reason to not price them separately.
Another reason to price separately is maybe the buyer thinks that way. It’s easier for us to sell something using the way the buyer thinks than to try to convince them to think differently. Sometimes they are more price sensitive on one portion of the offer than on the other. In that case, you could deeply discount the area they are price sensitive about and not discount the other area at all. Of course, you want your CFO to allocate the revenue more fairly. Internally you can treat it as one bucket of money that needs to be shared.
I’m sure there are more. Readers? What else can you think of?
Tags: pricing strategy, subscription pricing