In Tip 2 of our Software Supply Chain Optimization series we discussed license compliance and vulnerability risk related to Open Source Software (OSS). Today, we’ll have a look at flexible monetization models.
Flexible pricing and the ability to adapt your products to customer needs is an important criterion for software business success. One of the key objectives is to avoid the ‘throw it all in’ sales strategy which ultimately detracts significantly from the value in your products.
- Package your products for different customer needs using a flexible licensing and entitlement management technology
- Offer different product packages at appropriate price points for different market segments
- Provide value-related pricing that enables your customers to start small and scale as they grow
- Create up-sell and cross-sell opportunities for features and add-ons
There are a variety of ways to become more agile and flexible. Options depend on your industry and differ between enterprise and consumer products or high-cost and low-cost offerings.
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Different product packages give customers the functionality they need. Lite or basic products include core features but no extras. More expensive versions provide more functionality for a higher price. Make sure you align pricing to value and communicate the different feature sets clearly. Three different versions are usually a good choice; too many make it hard for customers to find the right one and can disrupt the purchasing experience.
“Featurized” products come with core functionality and additional features that can be added on-demand. This is a more flexible and agile option but it can get overwhelming for buyers if there are too many features to choose from. Such offerings are popular for enterprise software but also for intelligent devices. The ability to switch features on and off electronically on a hardware product reduces the number of physical product configurations manufactured and stocked.
In addition to flexible product packaging, producers can target markets further by offering different monetization models, as highlighted in our comment on the IDC FutureScape. A flexible and mature licensing system is essential when managing subscription and usage-based models which necessitate ongoing customer relationships. Producers often monetize products using a variety of monetization models and even offer hybrid solutions, like a subscription offering in combination with charges for ‘top up’ usage during peak periods.
Make sure that pricing and packaging options are easy to understand and consistent to provide a positive customer experience. Analyze the usage of your software to determine a winning monetization approach that is aligned with the value your products deliver. Ensure that some value is ‘left on the table’ as future up-sell and cross-sell opportunities are essential for business growth.
In Tip #4 we’ll discuss user experience and the importance of insights and visibility for your customers. Stay tuned!
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