Price-setting in the technology sector comes with a unique set of business challenges.
Players in the tech sector battle abnormally high levels of price erosion and face increasing pressure to shift to cloud-based pricing models. If they play their cards right, pricing can be technology providers’ path to growth and profitability. But to achieve this, alignment is critical across the whole organization, far beyond the pricing function.
To address the issue of price erosion, leaders should start by measuring the problem on a granular level, observing the erosion of each individual product line. Many companies measure erosion by taking a blended average of the full product portfolio—a technique that fails to account for the full range of product richness and volumes. By contrast, a granular approach allows pricing professionals to compare like products and adjust their goals accordingly.
Cloud migration is a beast of a different nature. The payoff can be huge—but it is realized only by companies that make deliberate pricing and packaging decisions and align incentives across the organization. Over the next five years, new cloud-based consumption models could account for more than 90% of revenue growth in the hardware and software sectors, so the time to start is now.
Pricing in Tech: Clearing the Cloud
For technology companies, price pressures are greater today than ever before. Low-priced competitors and sophisticated CIOs impel many companies to offer increasingly high discounts, eroding their prices across the board. The solution is value-based pricing.Learn how to execute value-based pricing
In the tech industry, effective cloud migration requires a full business model transformation. When done correctly, this move can increase price-to-revenue ratios by a factor of four or higher.Learn how to execute a successful pricing model migration