If you purchased a product that was the same as your neighbor’s–with the same configuration–would you expect to pay about the same price?
Probably yes, right? If not, one of you might feel ripped off.
Yet when it comes to software, buyers frequently pay different prices for the same product, a situation that can diminish a seller’s credibility, negotiating strength and ongoing revenue stream.
The Market Fairness Principle
I believe there is a principle called Market Fairness that is relevant to most software companies. In a nutshell, Market Fairness can be thought of like this: if two customers buy the same set of products and services from you, they should pay the same price or rate.
Software companies are particularly vulnerable to violating the Market Fairness principle for several reasons. For one, they may think that each implementation of their complex product is unique enough to justify a different price, helping them “get away with” charging different prices. Also, many software companies are hyper-focused on growing their customer base as quickly as possible and are therefore willing to make whatever deal is necessary. And because of ownership structures heavily weighted with outside investors, software companies practically invented the end-of-quarter discount rush.
I am not implying that software cannot be discounted based on the situation. I am implying that Market Fairness cannot exist without structured and consistent discounts. And that the penalties for ignoring Market Fairness can be severe.
“Market Fairness cannot exist without structured and consistent discounts…the penalties for ignoring Market Fairness can be severe.”
Why Market Fairness Is So Important
Even if it were true (which it almost never is) that no customer would ever find out what another customer is paying for your software, adhering to Market Fairness principles turns out to be in your best interest. Here are some of the very important things that can happen when Market Fairness is part of your company’s pricing philosophy:
- Shorter sales cycles: Customers learn over time that there is not much progress to be made in pressuring for special discounts, so the conversation shifts to what counts–applying the appropriate products and services to a pressing problem the customer is trying to solve.
- Elimination of the end-of-quarter mad dash: There is little incentive for prospects to wait until the end of the quarter to engage with you if the price remains the same regardless of when it is purchased.
- Protected MRR: With Market Fairness principles, salespeople have a powerful wall to lean against when combatting price nibbling or negotiating a request for an unscheduled discount. It protects your core recurring revenue stream from erosion.
- Higher sales team confidence: When your sales team clearly understands the parameters of discounting, they are much more confident in the integrity of the pricing they offer, and more capable negotiators.
Conversely, companies that do not inject Market Fairness into their pricing tend to struggle with maximizing profitability over the long-term, as customers inevitably become adept at navigating through the cracks.
Prioritizing Market Fairness in your pricing is a strong step in the right direction for your software company. Without it, getting paid fairly (and consistently) for the value you deliver becomes unnecessarily challenging.