SaaS Offerings Should be Driven by Price, Performance Management: PwC
The study explores how software companies can transition effectively to the SaaS model and maximize overall profitability through a holistic approach.As software companies continue to pursue new markets and business models by introducing software-as-a-service (SaaS) offerings, pricing management is a crucial factor that determines success or failure, according to a report from PricewaterhouseCoopers (PwC). The third of a series of reports, “The Future of Software Pricing Excellence: SaaS Pricing,” explores how software companies can transition effectively to the SaaS model and maximize overall profitability through a holistic approach based on PwC’s pricing management framework. The study explores PwC’s four-part pricing management framework when migrating to a SaaS model including SaaS pricing strategy, pricing formulation, transaction management and performance management. Pricing management is key to making a successful transition to the SaaS model, the report noted. "Failing to capture the true value of a product does more than minimize or eliminate profits; failing to consider legacy products in pricing strategy or making SaaS products dramatically less expensive can make the SaaS option seem like an inferior, lesser option," the report said. "Excess discounting can even force a price war amongst competitors that damages the category’s entire market."
Another significant aspect of pricing strategy is packaging—in other words, what the purchase includes. The report noted many software packages are offered in an enterprise edition, an edition for small and midsize businesses and a personal edition, which lets buyers choose only the features and functionality appropriate to their needs. For price formulation, in order to manage pricing by segment, PwC said companies define the list price for a base product (usually targeted at the largest segment contributing to revenue) and adjust list price for other segments as a factor of the base product price.