At my CEO Institute meeting this morning, one of the topics on the agenda was product pricing. It was very appropriate as recently one of the software vendors in our industry announced a 30% price reduction. When I saw this I asked myself, why? Why would someone devalue their product by reducing their price by 30% or in fact, even offer a discount at all (as others do)?
BGL has always believed the price of the product should be based on the value the product provides. That is the way we have always priced our products. We have been accused in the past by some of our competitors for being too cheap and accused by others of being too expensive.
The other rule we have is that we rarely (if ever) discount our products. We do offer incentives for clients to invest at certain times during the year (as do many organisations) and we do offer volume pricing, but we avoid discounts per se. Discounts in my view simply devalue a product.
BGL has used pricing over the past couple of years to encourage clients to move from our desktop to web products. We do not apologise for this. We have increased the price of our desktop products in line with cost increases and to support development of our web products, but have not increased the price of our web products. BGL does not intend to increase the price of our web SMSF product because we think it is fairly priced and provides exceptional value for our clients.
So why would someone drop their prices 30% and even suggest their software might one day be free ? In my view, there are a number of possible reasons:
- The vendor is making few new sales and is desperate to improve its market position
- The vendor does not think the product provides value at the old price (so at $0, does the software provide any value at all?)
- The vendor thinks their software is inferior to the other software in the marketplace.
- The vendor wants to sell you other products to pay for the software you are getting at a low (or no) cost
I don’t know whether all of the reasons are true. I just find it hard to understand why a business, that currently appears unprofitable, would decrease price to become even more unprofitable. I must have missed this lecture on strategy at university.
BGL also knows the infrastructure behind web software solutions is incredibly important. BGL’s partnership with Amazon Web Services allows us to implement features in our software that no one else can do. The BIG data analytics and zero touch automation are just two examples of what is now possible. Unfortunately, state of the art infrastructure is not free. Funnily enough, old outdated infrastructure can be even more expensive.
In the end, our clients will decide whether our software provides value for money and meets their needs. We know the automation in our Simple Fund 360 product significantly reduces our client’s SMSF processing time for the vast majority of their funds. This has been proven to us time and time again.
There is more to price than just the numbers.
So in answer to my question, What is the future of SMSF software pricing ? My answer is – I don’t know. What I do know however, is long term profitable software suppliers survive the ups and downs of the industry and the ups and downs of the market – unprofitable businesses do not. Software suppliers need to eventually make a profit so they have money to invest in maintaining and updating their software. So while the price tag may be important to some people, value in my mind should always be the number one criteria for selecting a software solution.