Tom Levers

Systems Integrators (SI’s) – pricing and product value

Posted in Pricing by Tom Levers on June 19, 2010

Microsoft, Oracle and SAP are feeling the heat as customers increasingly look for bargains in the enterprise data center.

In good economic times or bad, achieving a price advantage is critical to performance and profitability. So when a customer makes a significant investment in a software product often they ask software companies to “recommend”  a service provider.  This usually creates flexibility in pricing services. Using that room to differentiate services in terms of capability and deliverables can allow the SI to build more or less in their capabilities and the product.

The Systems Integrator’s price and profits are tied to the “perceived value” of the solution

For the Consultant to make sound pricing decisions; however, it is crucial to accurately measure perceived value, not individual billing rates. Ideally, the source for this data should be to look at the competition and if they have built a repeatable engagement. When a new consulting practice is built for repeatability, interviewing methods and analytical tools (in particular ConjointMeasurement) provide information on perceived values and willingness-to-pay. If  interviews are impossible (for cost reasons) it remains important to make quantitative assessments of the competitive situation and customers “willingness-to-pay”.

When comparing the characteristics of product companies they have high fixed costs, which is the opposite of the Systems Integrator.  Given the highly uncertain needs for consulting services means that the variable model (price per consultant day) is the most frequently used. Important to the customer is safety of the deliverable so  it is often reasonable for software consultants to make a project-specific evaluation of fixed costs based on an analysis of the clients’ needs. This allows customers to more accurately evaluate their consulting needs.

Value is subjective, and risk aversion is key to the Systems Integrator Pricing… based on this are you:

The $300,000 Stamp

1. Creating a repeatable consistent approach to pricing with regards to deliverables?

2. Considering the particular characteristics between the software product and service needs?

3. Enabling the customer’s willingness-to-pay. Building marketing tools for the consultants to ensure that the pricing model and price levels focus on the customer’s perceived value?

4. Creating marketing support tools such as “customer case briefings”, to ensure that pricing models are actively applied by the business development (sales) organization.

If you would like to read a great book on pricing, check out “The Price Advantage” .