An Elusive Balance: Price and Value

Mark Thomason, Research Director at IDC and author of the April 2019 report, “Usage Intelligence: Five Benefits of Analyzing Product Usage to Optimize Operations and Drive Business Models,” says “New commercial usage intelligence software is changing the game.”

Flexera sees the same thing with its customers, especially when considering the relationship between usage, pricing and value.

Understand usage—no matter what monetization models you offer.

In its recent research report entitled Flexera Monetization Monitor: Monetization Models and Pricing, Flexera found that product managers can make the best pricing decisions if they improve their understanding of how their products are being used. Usage data helps identify the features and functionality that customers find most useful, which leads to better pricing decisions. 

This understanding of usage is critical for appropriate pricing of all monetization models—not just “usage-based.” For example, as suppliers shift to subscription models, they must continuously deliver value through new features, functionality, and security updates, in order to remain competitive and retain customers. 

Software suppliers are trying to align price with value. The results are mixed. 

While more than half (53%) of suppliers feel their pricing is aligned with the value, a notable 44% are seeing problems and finding this difficult. Of those having issues today, 19% find customer acceptance to switch models a hindrance; 17% find they are hindered from change due to insufficient customer usage insights—and therefore unsure of the appropriate licensing models to adopt to ensure both profitability and value. 

What makes aligning price with value so difficult?

The top three hurdles software suppliers encounter when trying to align price and value are: insufficient insight unto usage (33%); inability to define the most appropriate metrics to measure usage (30%); or simply the risk inherent when changing business models (29%). 

Gathering usage data is a common organizational challenge, with only 35% of companies saying they do this well; another ⅓ say they have some capability, but it requires manual intervention and engineering resources. For the rest, this ability is a few years out—or not even in the pipeline.

Strike the balance. 

If pricing is part art and part science, this survey suggests the science element—usage data—is lacking in many companies. Because pricing is critical for all monetization models, companies must improve their understanding of how their products are being used. Usage data helps identify the features and functionality that customers find most useful, which leads to better pricing decisions. With “insufficient insight into usage” identified as the top hurdle to aligning price with value, and the recognition of organizational issues associated with data collection, successful companies will utilize monetization platforms to help them determine how their products are being used – and help achieve the elusive balance.

Read the Flexera Report

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