Providing users with an optimal software platform pricing model provides options to choose the value additions they may need, along with the default service or product. The ideal software pricing strategy should be mapped to the product architecture.
Most pricing models tend to either be 1) cost-based or 2) value-based. This is determined by whether the product's feature set is available at a fixed rate, or if individual features can be added in a tiered or incremental pattern. Product managers are often tasked with making the decision on one of these pricing models based on a thorough business viability assessment.
For SaaS products, there are value-based pricing models. The freemium pricing model is a popular value-based model which offers a free trial of the product with limited features, along with the option to upgrade to a paid plan that unlocks those features. Per-feature pricing is another option where each feature tier leads to an increase in pricing, while per-user pricing is a user volume-based pricing plan.
At the end of the day, an ideal software platform pricing model provides flexibility in terms of contract management, the option for trial without long-term investment, unlimited customizations, and similar value additions.
The product manager or the marketing department considers and weighs several factors before determining a software pricing model. These factors are referred to as value metrics, and the most viable pricing models are based on market insights and exhaustive supply-demand analysis.
During the aggregation of these insights, the following value metrics are taken into consideration to determine the appropriate software pricing model:
1. Product Strategy:
The marketing team’s approach to product positioning can help to determine the price of the product. Product positioning could include positioning as an affordable competitor, which would mandate a lower price point. On the other hand, if the positioning of the product involves conveying its quality or luxury, a higher price point can be justified.
2. Market Dynamics:
Pricing may depend on the market variables that affect demand, and the product's market potential. For instance, competitor pricing needs to be taken into consideration, as well as what buyers are willing to pay for comparable goods.
3. Product Specifications:
The type of product, the specific purpose that it was built for, whether it performs more than one function, and if it is a software or hardware-based solution, all factor into the pricing. The more varied the product's feature offerings are, the more effort and resources go into producing it, thereby justifying its price point.
A central aspect of determining a software platform pricing model must take into consideration the value that it offers customers. After weighing a wide variety of operating factors, product managers can more commonly choose from one of the following SaaS product pricing models:
1. Flat Rate Pricing Model
Flat rate pricing is for software products that are offered to customers in a fixed state, with a fixed set of features. This pricing model is convenient for customers who would like the option to make a one-time payment for the software product and not worry about add-ons such as downloadable content, patches, or third-party dependencies.
2. User-Based Pricing Model
The per-user pricing model charges the product's subscriber, be it an organization or an independent operator, for every user of the product. It is a nearly obsolete model and is not widely applied in the software domain as the number of users of SaaS products tends to constantly scale up or down.
3. Tiered Pricing Model
The tiered pricing model consists of a staggered range of prices for a product. Billing may involve filling up each tier based on increments in the number of users, features, or subscription periods.
4. Active User Pricing Model
This is a variant of the traditional per-user pricing model where it does not matter how many users are enrolled. Instead, billing is done on the basis of customers that are actively using the product. For instance, users who log into an enterprise software product are monitored, and the enterprise is billed for the number of logins.
5. Dynamic Pricing Model
Dynamic pricing, which is also referred to as surge/demand pricing, makes use of variable pricing strategies. Businesses adjust the pricing of their products to account for changes in demand or other market variables.
6. Competition-Based Pricing Model
This is an outward-facing strategy to determine the price of certain products for which competing products already exist in the market. Businesses often analyze their market competitors' pricing strategies using a spectrum of high-level algorithms before arriving at their product pricing.
7. Cost-Plus Model
This pricing model involves analyzing the unit cost of developing the software product and then setting the price of the product at a margin slightly higher than that cost.
8. Freemium Pricing Model
The freemium pricing model utilizes a pricing strategy to attract customers who may not otherwise readily purchase the product. It is a mix of 'free' and 'premium' pricing wherein customers get limited features of the product for free on a trial basis after which they have the option to pay for the full version.
Deciding to purchase a Supply Chain Management (SCM) software is not just meant to solve an ongoing need, but should also solve for long-term supply chain dependencies. The first step towards making this decision is to clearly define the business requirements of your organization.
Businesses must identify the specific supply chain processes that need attention and resolution. The next step is to examine the various SCM alternatives that are available in the market, and how they compare with each other in terms of pricing, potential ROI, and the ease with which they help streamline supply chain processes.
As a rule of thumb, businesses can consider 3 overarching capabilities to help decide which SCM software to purchase. These include:
Collaborative Transparency
Organizations are vulnerable to volatility and potential disruptions due to the increasingly global nature and the complexity of supply chains. Organizations must have the capacity to map an existing supply chain, promote collaboration among teams, have an awareness of potential problems a supplier might face in real-time, and then proactively work to find solutions.
Unbound Scalability
A technology solution must have the capability to be scaled as the company grows, the number of suppliers rises, and supply chains become more complex. Solutions for supply chain management are becoming more cloud-based, which provides nearly limitless scalability in this regard. Scalability in the cloud can be implemented simultaneously at several sites and makes use of fewer resources.
Scope of Integration
SCM software must allow enterprises to seamlessly integrate it with a number of other internal systems for cross-departmental data management and better functional uniformity across the supply chain. One of the most viable options to make this possible is to opt for an Integration Platform-as-a-Service (IPaaS). Alternatively, the following tools can be separately integrated with SCM software:
- Enterprise Resource Planning (ERP)
- Warehouse Management System (WMS)
- Transport Management System (TMS)
- Product Lifecycle Management (PLM)
- Electronic Data Interchange (EDI)
- Manufacturing Execution System (MES)
