When priced right, analytics can contribute an average of 54 percent of the overall value of your software products. If you’re not seeing big sales returns from your embedded analytics, ask yourself: Do you know the value of your analytics capability—and how to price it accordingly?
Determining Relative Value
When you’re ready to price your tiered product offering, we recommend using the Value Pricing Framework created by Software Pricing Partners. Using this approach, you essentially list all the analytics features that make up your premium-tier product (the premium tier typically includes all of the features you offer).
Next, draw a horizontal line across your list to mark the cut-off points for the less feature-rich tiers. For instance, you may have three tiers total with 20 features in your premium tier, 17 in your mid-range tier, and 11 in your base tier. Now that you have your tiers covered, it’s time to determine the relative value of each.
Assuming that your premium level represents 100 percent of your analytics value, you can then estimate how much of that value is being contributed by each added feature above the premium tier cutoff line. Subtract that estimate from 100, and what remains is the value of the mid-range and basic features tiers combined. Use a similar approach to estimate the value contributed by the features in the mid-range tier. What remains is the value of the basic features tier.
Now that we know relative value, we can use it to determine the 100 percent price for the premium tier.
The Economic Impact Analysis technique of pricing keeps the focus on value as perceived and experienced by customers. Focusing on the revenue side (which is usually most compelling to customers), list the benefits of your premium-tier analytics offering and try to quantify the financial results. If you have them, case studies from customers are the ideal source.
Perceived risk, competition, effects of price on demand, and other market dynamics will, of course, constrain you from setting a price equivalent to the full economic value you provide. Still, it’s helpful to start thinking about how much economic value you might be able to capture in a proposed price, and it’s a good test of reasonableness.
You may also use a second technique called Competitive Pricing Analysis. When you assess your analytics offerings versus the competition, you’ll find comparable products have the same basic features and associated list price range in common. That’s the estimated “market price,” as perceived by your competitors. Remember that list prices can be deceiving since most customers pay a net price (net of various discounts).
Focus on talking with competitors’ customers to determine net prices paid for software access fees, implementation, and professional services. Presumably, your premium tier has unique value-adding features. So the question becomes: How much more than the market price can you charge for your unique value-add? How much is it worth to your customers?
To answer this question, list the analytics features in your premium tier that competitors don’t offer. How valuable do customers perceive them to be? You should be able to create a set of overlapping price ranges for your premium tier to help you narrow down the possibilities and focus in on your best choices. Then, you can apply your relative value percentages to assign prices to the rest of your tiers.
For more guidance on determining the value of your analytics, read our ebook: How to Package and Price Embedded Analytics.