Summary
A software company, specializing in cutting-edge animation tools, faced stagnant revenue growth over the last three years. The primary software was offered under a simple, subscription pricing model with two tiers, paid and unpaid. The company had substantially increased funding for new customer acquisition over the same three years with no corresponding increase in the subscriber base or revenue. This situation, coupled with a highly variable margin, prompted the reassessment of its pricing structure to drive revenue growth. Internally, the company was at a strategic crossroad, divided by a common disagreement between sales and marketing departments. Sales wanted to cut pricing while marketing was focused on selling the value of the software. The company engaged Revenue Management Labs to help in developing a growth driven pricing structure grounded in data-driven insights and an impartial third-party perspective.
Challenge
Several factors could be contributing to the flat revenue over the past three years at the animation software company. The stagnant customer subscriber base was the obvious first area to explore when investigating pricing. The company used a simple two-tiered pricing with a paid, regular license priced at $499 and an unpaid student license. The simple two-tiered pricing model was clearly not resonating effectively with potential customers given the ineffective customer acquisition investment. There could be other factors, such as how the value proposition is being communicated, competitive landscape, and market perception, that could contribute to the stagnation.
Solution
Revenue Management Labs recommended shifting from the simple two-tiered pricing system to a four-tier pricing system, a more nuanced approach to pricing that considered factors such as customer segment, tenure (how long the customer has been with the company), required licenses, and price sensitivity. Our experts applied advanced analytics to redefine the price fencing strategy for the software company based on value identification and a combination of customer surveys and data analysis. This approach is not only applicable to software pricing but also holds significant potential for implementation across various industries.
