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Pricing in the Tech Industry

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.

According to BCG’s Jean-Manuel Izaret, pricing is a contact sport. Jean-Manuel explains how companies can measure and manage price erosion, set the right goals, and build strong pricing capabilities. This is not about a one-time price improvement—it’s about a continuous process of price-setting and perfecting.

Solutions to Pricing in Tech

Value-Based Pricing in the Tech Industry

Value-Based Pricing in the Tech Industry

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
Pricing Model Migration

Pricing Model Migration

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

Meet BCG’s Experts on Pricing in the Technology Sector
John Pineda

Associate Director

San Francisco

Read more insights on tech sector success

Technology Industries

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