Don't Just Roll The Dice - A usefully short guide to software pricing by Neil Davidson

Author:Neil Davidson [Davidson, Neil]
Language: eng
Format: mobi
Tags: Development, price, cost, pricing, software
Publisher: Red Gate Books
Published: 2009-09-30T14:00:00+00:00

If you sell your products individually then, product-by-product, you need to choose the maximum price that the person who values that product the least will still pay. You need to price the Time Tracker 3000 at $150 (so Willhelm will buy it) and the Task List 400 at $150 (so Pat will buy). That means that Willhelm and Pat will each give $150 for each product, and you generate revenue of $600.

But let’s say you create a bundle of the Time Tracker 3000 and the Task List 400. At that point, the bundle is worth $550 to Willhelm and $550 to Pat. Set the price at $550, sell the bundle to both people and you generate revenue of $1100. Willhelm and Pat have got all the software they want, and you’ve generated an extra $500.

However, bundling has drawbacks too. When you bundle software together it becomes harder for your customers to understand what they’re paying for. In turn, that might mean they are less likely to use it.

For example, a diner eating a fixed price menu is more likely to skip coffee than a diner who’s paid explicitly for the coffee. The coffee is bundled, so the disconnect between what the diner is paying for and what he is consuming makes it easier to not consume.

For software, if a customer is less likely to use a piece of bundled software then he might be less likely to buy a future version, or to continue to spend money on maintenance contracts. One way of counteracting this effect is to continue to be explicit about the worth of each item in a bundle.

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