Post #1

03-07-2005, 11:06 AM
msharar
Newsletter/Forums Member

I have been tasked with the creation of price increase notification. I work for a relatively small software company who's price points have stagnated for 6 six years. Now the realization has set in that with new product releases and additional resources in the engineering and support department that our value has gone up.

Any insight on verbage to inform prospects of the 18% increase will be appreciated.

Post #2

03-07-2005, 11:22 AM
TomSweeny
Moderator

Is this an increase for support and maintenance? new products? If you could describe what the increase is related to it will help to provide a specific response.

__________________
Tom Sweeny
ServiceXRG
Helping companies achieve service excellence
tsweeny@servicexrg.com

Post #3

03-07-2005, 11:27 AM
msharar
Newsletter/Forums Member

This will apply for all product & professional services. Our maintenance is roughly 20% of software cost so - yes. Current customers will not experience the increase.

Post #4

03-07-2005, 06:58 PM
Charles Mills
Principal Moderator

Quote:

Current customers will not experience the increase.

So who will experience an "increase"? For new customers, its not really an increase, right? It's just the (new) current price.

Unless I misunderstand this, my instinct is not to "notify" them at all. Just invoice at the new price. When my phone or satellite TV bill goes up, I don't get a "notice" from them, I just get a monthly bill with a higher amount on it. Be prepared with a very smooth explanation for anyone who complains. Be prepared internally for exactly what concessions you are prepared to offer to anyone who complains especially loudly. But I would not borrow trouble by pointing out that your price has gone up.

The explanation is just what you told us here:

Quote:

price points have stagnated for 6 six years ... with new product releases and additional resources in the engineering and support department ... our value has gone up

Be prepared to explain EXACTLY how the customer receives more value. Features ? benefits.
__________________
Charles
CharlesMillsConsulting.com
StrategicDueDiligence.com

Post #5

03-07-2005, 07:14 PM
Jim Geisman
Moderator

You will need a strategy for dealing with existing customers if you peg your maintenance and support to current license prices (which will now go up...)

In that case, a 20% hike in price will add another 4 percentage points to what they are paying (They used to pay 20% of SW priced at 100 now they will pay 20% of SW that now costs 120).
Regardless of the percentages, the customer's maintenance bill will rise. Just make sure you remind them of the new price basis otherwise they may remember the old price, see the new amount paid and really hit the roof ....

One common tactic is to point this out to existing customers and let them pay the current (20% of the 100 price) if they sign up for three years -- paid in advance if possible.

You can also use this as a way to get all copies of the software under support (but you have to know that they don't have everything under contract...). THe offer in that casae is roughly the same -- put all SW under contract at the old price otherwise pay the new rate.

If you really want to be clever, you can give people a choice of maintenance or support for 10% of the new price (i.e. 12% of the old price) or both for 20% of the old SW price.

But Charles also makes the point that a price change should be accompanied by a good reason why (and "we screwed up and left our prices low" doens't matter to the customer.)

Now you know why most companies review their prices annually...

Best of luck...

Jim Geisman
__________________
Marketshare, Inc. // Wayland, MA
Helping technology companies realize greater value ...
... from the products they sell and the professionals who sell them.
Value-Driven Pricing -- Discount Management -- Value-Based Selling
Tel: 508-647-0330 or visit http://www.softwarepricing.com
Last edited by Jim Geisman : 03-09-2005 at 12:32 PM.

Post #6

03-08-2005, 04:35 AM
memphishank
Moderator

What do the contracts now in place with such customers mandate/specify or suggest re. pricing?

Henry W. (Hank) Jones, III
Law Office of Henry W. Jones, III -and-
Intersect Technology Consulting
2002 Mountain View Rd., Austin, TX 78703
memphishank@aol.com; mobile 512-695-4673; fax 512-857-0393
IAALBIANYL

Post #7

03-08-2005, 07:15 AM
msharar
Newsletter/Forums Member

I appreciate the insight! The only effected people will be those in the pipeline. The initial thought was to use the price increase as a compelling reason to close in this month. With this said, I believe it is imperative to notify any and all prospects of the increase.

What I am truely after here is some creative verbage that the price will increase effective April 1 based on additional technical support and new releases of our product.

Post #8

03-08-2005, 07:32 AM
Charles Mills
Principal Moderator

ha! So it's the old "buy now, avoid the April 1 price increase" sales pitch. I'll see if I can get any of our sales experts to chime in here.

__________________
Charles
CharlesMillsConsulting.com
StrategicDueDiligence.com

Post #9

03-08-2005, 08:08 AM
LisaMoody
Moderator

First of all, how long is your sales cycle? April 1st is bearing down and if you have a long sales cycle then it's cutting it short to get prospects to buy before it goes up.

I know the first part of the following doesn't help your current situation but it's important to put something in place.

I always put an expiration date on my quotes. That expiration date depends on the sales cycle. If the sales cycle is 18 months and higher then the expiration date is 6 months. If the sales cycle is less than 6 months then the expiration date is 30 days.

If you go to all of your prospects today (it's March 8th) and tell them that you're raising the price of the product on April 1st, you risk alienating them. You have to figure out which ones were really going to buy from you, in the next couple of months, and give them the time that your sales cycle warrants to push the deal through.

The verbiage is very easy, if you're being fair to them and giving them the time they would need to make the decision.

Dear (Prospect), We have added new features to our product. We're excited about (feature1, feature2, feature3). We are also expanding our support/maintenance services to include (feature1, feature2, feature3). With these new additions will come a price increase to our software and services. Effective (date), the new prices will be: (insert prices here, clearly show what they are now and what they will be.) Because we value you and would like to afford you an opportunity to purchase at the prices you have budgeted, we would like to offer you a (90-day or put the actual date window) to lock in at the prices you have been quoted. We are looking forward to working with you. If there is anything that we can do to expedite your purchase within the timeframe please contact (give a specific name here) at (phone) or (email). Thank you, (Company)

My preference would be that you send something in writing and then also make the phone calls. Their impression of your company could be altered by this interaction, make sure that you're fair to them and to your company. You've been at this price for six years, another 90 days is not going to break the bank if you are going to earn the business of more customers. It's the old would you rather have $0 or $20. Would you rather have 5 customers or 10? Hypothetical numbers, of course.

Lisa

Post #10

03-08-2005, 08:12 AM
msharar
Newsletter/Forums Member

Great information!! I agree the bottom line is to be fair and apply to only those who are in the purchasing position of the pipleine.

Post #11

03-08-2005, 08:31 AM
pmorettini
Moderator

Is your software expensive, with "high-touch" sales? If so, I really would not worry about a "Marketing Message" to notify prospects in the pipeline of this. I would just instruct the sales force to inform their prospects that they better hurry up and buy, there's a new release coming out in April and it's high value so it's being priced higher. This way you will get the "sense of urgency that you're looking for to bring sales forward. When the new release of the product comes out, you can simply price it higher. This way you avoid a widely dispersed marketing message about your company "raising prices" (which in some cases can be undesirable). You always run the risk of course, that by talking about a new release--this will "freeze" some people into waiting. The alternative is to not talk about the new product, but then you have little justification for the price increase.

If you're not in a business where there is close communications between your sales force and prospects (a lower priced product with high volumes, for example), you can do pretty much the same thing with marketing. However, the

"Widget Software Version 4.0 is scheduled to be released in April. Due to the addition of (a few vague words about feature additions here) as well as increased technical support resources and response times, v4.0 will be priced roughly 18% higher."

You run the same risks here as in the first example, except the message will be even more widely distributed.

The last way of handling this would be my preferred method. Don't talk about the new product or explicitly about the price increase to prospects. Let you sales force give them a "vague notion" about a price increase coming up, they might want to get there order in. At new product intro, announce the new product, with the new pricing, while not explicitly talking about it being higher (unless for some unusual positioning reason you want people to know you are raising your prices). Then privately offer to "grandfather" the existing prospects in the pipeline the new product for a the "old" price for some short period of time, say two weeks. This way you don't have to pre-announce a new product, or "advertise" a price increase.

There are pluses and minuses to all of these scenarios, of course, and need to be considered based on the details of your market situation, which I'm not privy to.
__________________
Phil Morettini
PJM Consulting
phil@pjmconsult.com
858.792.1062

Post #12

03-08-2005, 09:39 AM
LisaMoody
Moderator

If I were in this position, I would get the current prospects in on the new higher priced fully featured product at the old price they were quoted if they moved in the timeframe you give them (of course if you have third party licenses involved, they'll usually understand if you tell them that there's an increase for just that piece). This builds customer loyalty and referral marketing opportunities that are untold.

And, absolutely, do not sell them the current version and then release the new featured version and try to make them pay for that update . It looks good on paper, but it's not good for a relationship. I had a company do that to me and I went up the line to find the person that could make it right, but, in the end, I would never purchase ANY of their other products, even if they had the best.

Be straight and honest with your prospects. But, put a time limit so that it doesn't affect your bottom line in the long run! This is a really great opportunity for you to build quality customer relationships with these prospects. Just think about how loyal you would be if a salesperson actually helped you purchase the new version at the current price and got you locked in.
Don't use "sales techniques" because then you'll look like the furniture store that is "going out of business" every weekend.

Lisa

Post #13

03-08-2005, 09:41 AM
msharar
Newsletter/Forums Member

We plan on grandfathering everyone. Additionally we have a mandatory maintenance in year one so...

Post #14

03-09-2005, 12:07 PM
Dave45000
Newsletter/Forums Member

A price increase can change authority levels requried for the buy. Price increases never shorten the sales cycle. Your sales cycle will get longer, and sales will have to discount deeper.

When my company decided it was important to be a CXO sale, and the software should have in no way ever been a CXO sale, they raised the price significantly in the middle of the quarter. Always wait until the new quarter and align the new price with a new forecast. If you have to give downward guidance, then you need to think really hard about the new price.

As a result they blew the quarter, so they came out early and announced downward guideance before the quarterly analyst statement. The stock price fell $37 per share before the end of the quarter. I vested two weeks after the downward guidance, so ....

Even if you are not a public company yet, don't start believing that pricing is a playground. And, check your egos at the door.

David Locke