The example of two New Zealand companies — one which introduced its product with a $US50,000 price tag, and another which has just reduced its entry cost to zero — indicate how software pricing can generate market interest and perception.
For New Zealand companies approaching overseas customers for the first time, price is one of the most important decisions they can make. Set it too high, and the product may fail to attract critical early adopters. Set it too low, and the revenue stream may not be sufficient to fund a market push, or the product may even be dismissed as unimportant.
Like advertising, public relations, branding and packaging, the price of a product says a lot about its perceived value and its place in the market.
Jade Software partner manager Keith Cowan (pictured) says companies need to be very informed about their product and their markets before setting prices.
“I actually think you can’t talk to enough people about prices,” he says. “You have really got to do your homework, and that’s not just here, that’s in all your markets.”
Jade Software last week released Jade 6, dropping the cost of a development licence from $6400 to nothing. Separate licences will be available for runtime applications.
“We’re moving the cost of Jade down, but we’re moving the cost of support up,” says Cowan.
It’s a change in the pricing model that Cowan hopes will drive more adoption of the product — the company is aiming to increase its user base tenfold — but a great deal of planning has gone into the move.
Christchurch-based Jade has 350 employees, two-thirds in New Zealand. Cowan says the product now has the features, robustness and support mechanisms for Jade to be able to offer it at a low price.
“To be honest, we probably knew that Jade was going to be free right from 1987.”
But care had to be taken that customers who had already paid for licences didn’t feel they had been left behind. Cowan says the move was made easier by the “very mature” local market.
“So long as you recognise them [customers] and the strong partnership you have with them over time, they’re okay,” he says.
“New Zealand companies, if they see you going overseas, they will be happy to see you go overseas. By and large, it’s good for them.”
He doubts the perceived value of the software might be adversely affected. “I think there’s a definite difference between free and cheap.”
Auckland business intelligence vendor PST Software, meanwhile, has had some notable successes in the US market with its Q4BIS data warehousing and analysis tools, including sales to John Laing Homes, Memorex and the Southern California Water Company. Laing Homes has annual turnover of $US800 million.
Tom Meijer, head of sales and marketing, is candid about the need to address the local and export markets differently. PST used “introductory” pricing to attract US early adopters, and tiered pricing to place the product at different price points.
PST “got serious” about the US market about 12 months ago, Meijer says. “We took a stance at the time that we’d offer some introductory pricing for about $US50,000 for a site licence.”
The introductory pricing was set after comparisons with competitive products. The aim was to encourage a few companies to adopt Q4BIS, in the hope that others would follow. “We wanted the ability to be able to move on price once we showed value in the product.”
Last year PST chose a JD Edwards user conference to introduce its products to the US. It picked up a number of customers with the introductory pricing, and when PST returned to the conference this year it was armed with a new three-tier pricing model and a list of half a dozen existing customers.
“They saw we’re now in the hunt and we could be considered a viable alternative for their business intelligence needs,” says Meijer.
The three-tier pricing model sets licence costs based upon the annual revenue of the customer, measured as less than $50 million, $50 million to $100 million, or over $100 million.
PST takes the local-prices-for-local-markets approach a step further: while the prices remain the same, the local currency is used. Whether New Zealand dollars, Australian dollars, greenbacks, euros or sterling.