Video: The Need for a Disciplined Approach to Software Discounting

Transcript of Chris Mele’s talk:

There are a lot of really interesting symptoms that occur when there is a pricing problem a foot. But you don’t really or you wouldn’t really naturally describe it that way.

The first place that things occur is in the sales team. So one of the places that you’ll often find is what we call the Wild West. This is where we have a list price and an idea of what a net price should be. But in practicality, and in reality, sales people sell it at whatever the heck price they want. We have some customers that are surcharged some customers that are discounted, and this idea of market fairness is violated. That means that if two of us thought the same thing, we should have paid the same price. But if two of us bought the same thing and we pay sometimes wildly different prices, that’s a really good sign that there is a huge systemic issue in the pricing approach.

I think a symptom of a poor monetization approaches is when we have a scenario where we’re attracting a game changing client, or attracting an enterprise client, or just somebody who’s going to buy as if there are multiple customers and the pricing just doesn’t make sense, it doesn’t scale, all of a sudden, the price I’m going to quote is completely disconnected from reality. When we have situations like that the sales people are then tasked with figuring out how to not just discount to make the deal sound reasonable. But then also through negotiation, they’re going to have to discount. Once again, discounts are often perceived as this bucket of discretionary discounts. But in general, if you have a list price, and you’re going to buy a lot of volume, customers expect to get a deal for that if they’re going to act as an aggregator. They expect to be honored for that, especially in American culture. There’s this idea that if I buy more, I get some sort of special treatment. So having a way that prices scale with volume is incredibly important.

Pricing is getting a lot more attention these days. It’s rapidly becoming a discipline and you’re going to see this discipline continue to mature inside of software companies just like it did with product development, just like it does with product management, with marketing etc., and even sales.

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