Note, 02 February 2010: Since posting this yesterday, I’ve been informed by Kubotek that these deals were for 2009, and are no longer offered. Check with them for current offerings and pricing. Kubotek also tells me that they an “awesome year end and the best year ever.” Congratulations!

I received a series of emails towards the end of 2009 from Kubotek, offering $700 off on KeyCreator V9, including three months of free maintenance. Kubotek was offering other specials, too, such as 20% off on KeyCreator/KeyMachinist 3-Axis or Extended Translator bundle or $500 off a KeyCreator/Hypershot Rendering bundle and a 30% discount for existing customers on KeyMachinist or Extended Translators. Then today, to coincide with the start of SolidWorks World, Alibre announced a permanent price reduction for Alibre Standard to $97 upfront plus $97/year for maintenance and a new pricing structure for its other products. While this is good for buyers interested in starting with Kubotek’s or Alibre’s products or expanding an installation, I have to wonder how good this is, long term, for each vendor.

Pricing is very tricky business. Finding the right balance between a product’s perceived value, what the producer needs to stay profitable and grow, and what the competition offers is usually the result of trial and error. Alibre and Kubotek are both established businesses, so it’s likely that their management tested these prices to ensure that the company can remain profitable and that cannibalization from more established products is kept to a minimum, but it’s still a worrying trend.

There is one radical difference between the Kubotek and Alibre approaches. Kubotek is discounting while Alibre has announced a permanent price change. Drastic discounting creates the very real risk that customers will never again pay full price because they perceive the value of the product as the lowest price they’ve ever paid. Think of an iPod, if you’re not familiar with CAD products. The base model is an MP3 player priced several times higher than competing products, yet iPods fly of the shelves. Apple has convinced consumers that its cool, sexy fashion accessories are worth the premium. To bolster its value image, It does not allow retailers to discount its products. Discounting makes consumers think of Wal-mart, not Neiman Marcus.

If a producer does want to adjust pricing, it’s better to simply change it, as Alibre has done. Offering a discount implies that this is a limited-time offer and that the price will return to normal at the end of the promotion period. Changing the pricing on a permanent basis (“New low price — same great product”), on the other hand, resets the buyer’s impression of the product and its value and can make the producer appear responsive to customers’ new business reality. It doesn’t create a sense of urgency, however, and perhaps that’s what Kubotek is after.

I think most buyers want to get their goods as cheaply as possible (a visceral reaction) but realize that their vendors need to stay in business (a logical reaction) in order to deliver support. Let’s hope the decision to change pricing turns out to be a sensible one for each vendor and that their long-term viability is intact.