Pricing is an art form

It must be, or why would we all believe that $12.99 is actually a more attractive price than $13.00? In the real world a price must reflect the cost to produce the product (or service) at its expected volume and the value the customer places on the product while allowing the manufacturer to differentiate the offering from competitors. Buyers make decisions after weighing the product’s purchase value against other competitive choices in the marketplace. The bottom line is that the “right” price for any product or service is one that is acceptable to both buyer and seller. Price too low, and the buyers may question the product’s value. Too high, and the sales rep may never be allowed in the customer’s front door to pitch why the product is worth the price. In software, there’s the added complication that the product’s incremental cost is negligible. All of the cost in creating software is tied up in that first license: without all of the R&D, completely finished, that first sale will never happen. The product cost for each license thereafter is almost zero because no additional work (or raw materials, etc. in the case of web downloads) are needed to fulfill that second order. So how do you select a price that fits the creator’s need for profit and cash flow, is attractive to the market and takes into account the current state of hardware? We need to remember that many of today’s engineering software companies were started when hardware drove pricing: a very expensive workstation was needed to drive CAD and CAE, and the software was priced to fit that model. A CAD seat back then cost $50,000 or more. Today, a very nice laptop costs under $2,000 and can run almost any flavor of CAD (and some CAE) — so how can software cost 30 times as much? It can’t. If a worker earns $40,000 how can the tools he use cost several times his annual wage? It can’t. Some software vendors have taken this into account, and are pricing their software to suit. Bentley Systems’ Passport Subscriptions are software subscriptions for named users, priced for specific job functions, also taking into account the prices of competitive products, the need for a relatively rapid payback versus a traditional perpetual license model, and the actual needs of the person performing a particular function. For around $4,000, a discipline-specific Passport Subscription provides access to software, training, and content that an architect, designer or other professional requires. For example, the Designer for Piping Passport Subscription includes AutoPLANT’s piping and equipment modules, the OpenPlant P&ID package, the ProSteel structural package, ProjectWise’s clash detection module and the ability to connect to ProjectWise’s data management backbone. (Since AutoPLANT runs atop AutoCAD, the user also still needs an AutoCAD license.) This type of bundling offers significant value. The most commonly-used packages are combined and priced at roughly 1/3 the cost of the perpetual license but include training and content not available under the typical perpetual fee structure, simplifying budgeting and tying together everything the professional needs to do her job. Bentley has created a number of Passport application suites corresponding to common work roles in building and plant design, civil and structural engineering and mapping. Anne-Marie Walters, Bentley global marketing director, told me that these “practitioner packages” were priced to replace the far more expensive products sold by Bentley’s competitors as users questioned the value of technology that has been around for decades. “We’re pricing realistically. Given the competitive environment our customers face, they need easy to use, modern tools to do their jobs.”