I recently had a conversation with one of our partners, Craig Justice, Director of Worldwide Channel Sales at SmartDraw, about pricing strategies. Our partner doesn’t use price to compete with and I fully agree with this strategy. “We have a unique product; there’s no need for us to compete on price,”

Justice also added “Our target customer is the ‘business user’ — if the customer needs our easy to use graphics solution, they will purchase it. Price is rarely an issue in the purchase decision.”

Make A Quick Buck

The possibilities of increasing number of sales when lowering your prices are obvious, but what happens in the long run?

It is very likely that the value of your product will be perceived at the price you set. The reason for this is that software products are generally very difficult to value. This is because there are so many factors determining the perceived value of your product such as your brand, offered support, product features, product image, competitor prices, your target market, word-of-mouth and many other factors.

I would even go as far as to say that they have a different value to each client based on how, what for and how often the products are used.

Price = Perceived Value

This all means that the price becomes a very important factor in setting the perceived value in the clients mind. And by lowering your price you then lower the perceived value of your product.

So if you have a chance to run a campaign which adds to the perceived value instead of lowering your price you should definitely take the high road. (I will cover ways to add value to your software product in future articles.)

It is also important that you extend these limitations of price competition to your resellers, affiliates and other partners because their pricing strategies and tactics also influence the perceived value of your product directly.

Limited Time Offer

If you still choose to lower prices, you should always try to accompany the offer with a reason why and limit the offer to a shorter period of time. If done correctly you will have a client stating “I got this product valued at $49.00 for $39.00, what a deal!” And your perceived value is still intact.

That said, there are occasions where a lower-price strategy can be interesting, for example if you have the opportunity to tie the client closer to you by a maintenance agreement. But that’s for another time.

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