May 23, 2022
May 23, 2022
Contributor: Ashutosh Gupta
Anticipate customer usage spikes and provide flexible pricing models that meet customer needs but remain profitable.
Today’s tech pricing models typically incorporate usage metrics with mutually desirable business outcomes — offering value to customers and growth potential to providers. But many also lack the flexibility to respond to sudden or temporary changes in usage. For the sake of customers, tech providers should prepare a pricing strategy for common strains on usage limits.
“Hitting customers with unexpected bills risks dissatisfaction, churn and missed growth opportunities for the provider,” says Ron Burns, Senior Director Analyst at Gartner. “By assessing common unexpected usage scenarios, tech product managers can come up with more flexible pricing options and strategies to accommodate customers and maximize product profitability.”
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Traditional usage metrics include the number of end users, number of data transactions, or volumes of data throughput, with purchases made via tiers and yearly subscriptions. But Gartner research indicates three types of unpredictable situations that commonly afect these types of contractual usage limits:
These situations are not mutually exclusive, so you need to accommodate all three to maximize product use and profit opportunities.
Read more: 5 Impactful Technologies From the Gartner Emerging Technologies and Trends Impact Radar for 2022
By definition, tiered pricing models have a scope and ceilings. There are, however, some controversial market perceptions with these pricing models, overage policies and approaches for moving customers to higher tiers, including:
With clear and fair policies that enable customers to estimate usage more accurately, we can minimize unexpected surprises.
Therefore, plan to make product metrics accessible to customers with configurable administrative dashboards, usage reports, and notifications or alerts that can predict overages. Work with your sales and revenue operations teams to create flexible terms that allow easy movement from one tier to another during a contract period.
This kind of transparency and flexibility is key — and can often be a competitive differentiator.
Sudden unexpected demands on technology can result from a customer’s business variability, seasonality, cyberattacks and workforce adjustments, or even as the result of a provider’s marketing campaign. The following policies and pricing plans provide attractive paths to handle unexpected or seasonal usage spikes:
Three of the leading cloud service providers — Amazon, Google and Microsoft — all offer variations of burst, spot or reserved capacity pricing. Take note of how these providers use the functionality, policies and price points of these models to differentiate among their competitors.
In a credit (or token) pricing model, customers commit to a usage level for the licensed term, usually a year. A set number of purchased credits apply to several products in a provider’s portfolio. Overages are not a factor, and some providers offer a rollover of unused amounts up to the contract anniversary. Among the most advantageous scenarios for this model are:
There are some potential drawbacks to credit pricing models, as they may discourage usage, lead to hoarding behavior or cause customers with unused credits to demand a smaller renewal. Prepaid credits, however, should enable customers to preemptively select what they feel they need, instead of instinctively leveraging the right product or service for the task at hand. Technology providers that have rolled out credit models include Sumo Logic, Oracle Cloud and Snowflake.
In short:
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Recommended resources for Gartner clients*:
Enhance Pricing Models to Address 3 Unpredictable Use Situations
Enable Growth With a Tiered Value-Based Pricing Model
How to Understand Cloud DBMS Pricing Models
How Product Leaders Should Select the Right Software Pricing Model
*Note that some documents may not be available to all Gartner clients.