In part one of our blog series on flexible software packaging, we discussed the clear need for software vendors to offer flexible software packages to their customers, options that are more customer focused and value-centric.
The old standards of perpetual licensing models and one-time purchases are effective on some level but fail to harness the full potential of a customer.
According to a 2017 report by Gartner, the next generation of business/pricing models will be hybrid models that offer a combination of subscription and pay as you go and give rise to a la carte pricing scenarios, where providers will have the ability to charge for additional features, more bandwidth and so forth. And while there are a wide array of different and effective packaging models out there, it’s become clear that the need above all else for software providers, is to be flexible.
Tailor Your Software Packaging Models:
The ability to offer a versatile and customizable suite of options allows you to deliver the correct package for every customer. But even in the world of more effective licensing models, there are many different ways to go. With software licensing, the best strategy a software vendor can have in today’s market, is to be able to tailor the offering to their customer, based on a multitude of factors that benefit both parties. Software vendors need to be able to adapt their product and licensing models based on elements such as their customer’s industry, usage levels, geographic locations and more.
According to Amy Konary, program vice president for Software Business Models and Monetization with IDC, "Most software companies want to be able to offer customers flexibility and choice in software deployment and pricing, while others are shifting entirely to cloud/subscription approaches”.
When companies choose which enterprise software to purchase, they weigh many different factors. While the most obvious considerations involve price and complexity of implementation, what it really comes down to is the customer’s projection of the value of your offering.
Introducing the possibility of flexible software pricing allows you to solve your prospective customer’s objections by molding a solution that actually resolves the problems they need to address.
For instance, if budget is a primary issue for your customer, you can offer a feature-based licensing solution, one that enables or disables features based on what the user actually needs, or a pay-per-use model based on the usage levels of the user.
Easy as ABC:
Let’s say Acme Inc. needs to purchase 10 licenses of a CRM software. Ideally, they’d like to purchase ABC Software’s latest offering, but the price up front ($100,000 per user) is too prohibitively expensive. They may look towards XYZ Discount Software Emporium’s $50,000 version, just based on price, or decide they can only afford one ABC license. But if ABC Software was able to counter with a flexible solution, they may not only win the customer, they can also create a long-term win for themselves.
Instead of the typical 10 perpetual licenses with a single upfront payment, ABC could offer Acme 10 licenses at $10,000 each, with a feature-based or pay-per-use subscription plan. With a feature-based plan, Acme would have access to the basic features they need in the beginning and would have the option to purchase additional features separately, based on their developing needs.
For ABC Software, this level of flexibility is crucial. It enables them to target the higher-end opportunities, clients who will happily pay for access to the full premium package, without leaving them exposed to missing out on some of the lower-end customers, such as Acme, who are satisfied with the lower cost, but still effective, ‘basic’ version.
Pay Per Use:
If they went the pay-per-use route, ABC would be able to charge Acme based on a wide range of usage metrics, such as a set time period, data accessed or the amount of times the product was used in a specific period. For example, Acme could purchase 250 download credits a month, for a fixed price of $500, and if they felt they needed more data downloads that month, they would add on additional credits at a corresponding rate.
In either of these cases, ABC has created a true win-win for themselves, and their customer. Despite the smaller initial payment, Acme would likely have a higher customer lifetime value, as the buyer-seller relationship extends far beyond the usual one-time purchase, and keeps the possibilities open for up-sell and cross-sell opportunities. With the proper entitlement management solution, ABC can update and manage their customer’s licenses remotely, in real time.
It also serves to increase Acme’s satisfaction levels, as they’ve committed to a smaller initial upfront payment but are also only being asked to pay for what they actually use. The true value of the software they purchased becomes inherently clearer to them, as they can easily measure their spend versus the usage and benefits of the software.
Mastering The Win-Win:
In 2018, software providers bear the responsibility of enticing potential customers, not only by developing the best product, but by offering truly flexible licensing options.
Software vendors that have shifted to a flexible pricing model, have proven that an improved user experience, increased efficiency in pricing and greater transparency of software billing, result in an increase in both customer retention and lifetime value.
The ability to create these win-win scenarios allows for a healthier and more robust long-term relationship between a satisfied customer and a successful software provider.
After all, as the phrase implies, when you create a win-win situation, everyone is satisfied.
Look more into our latest case study to learn how Thales Sentinel helped Casio create new ways to license and monetize their software.