No matter how complex your pricing is, it is always transparent to clients. In the last three years, I have worked with many Fortune 500 and not so “Fortune” companies on their pricing practices. It spans products and services, differentiated and commodity offerings, and monopoly and competitive situations. Most recently, I was involved with setting prices for a market-leading enterprise software company. The first thing I observed was the complexity of their pricing model. They tried to skin the onion in every possible way by capturing all conceivable usage metrics in their pricing model. It was so complex that even the pricing team couldn’t tell the price without spending laborious hours on an intricate excel model. But why should one care if it maximizes the revenue, right?
Wrong. A client will always take the time required to understand pricing irrespective of the value of the product and complexity of the pricing model. Generally enterprise software companies are notorious for their long sales cycles. Moreover, in this case, the sales team was spending a great deal of time on explaining and negotiating prices. The complex pricing model stood naked in a meeting room full of client executives. Why make it so complex when clients will eventually see through it? A company can follow any pricing strategy – premium, commodity, value-based, or cost plus – that aligns with the business strategy, but the key is to keep it simple. It saves effort for sales, marketing and product management to explain arcane pricing and hence the cost of sales. Moreover, it saves angst on the client side. I am glad that the management team learned and acted on it timely. The team recently rolled out a revenue-neutral but simple and transparent pricing, which both clients and internal staff loved. The business got a KIS [keep it simple] pricing on Valentine’s day!