It’s all in the Pricing for Solution Providers

It’s all in the Pricing for Solution Providers

Gary Hawkins, CEO, Center for Advancing Retail and Technology

Description

The massive retail industry represents an immense market for solution providers; that’s part of why so much innovation is flooding into retail. And while the flood of innovative capabilities available to retailers continues to grow, many solution providers - especially younger companies - make doing business with them more challenging than it needs to be by having confusing and complex pricing models.

We’ve seen nearly every revenue (pricing) model there is possible, from different technologies to different market strategies. We’ve seen some succeed and others fail. Here are a few thoughts from that experience…

Free: Some solutions seek to deploy their capabilities in retail stores but look to make their revenue from other sources. This could include, for example, a kiosk solution that provides offers (coupons) from brand manufacturers. The revenue model is based on brands paying, and getting the kiosk into the store (in this example) helps get more customers involved. The problem with the ‘free’ model is that retailers pay no attention to it - they have no skin in the game - and the solution will frequently wind up in the back corner, if not the back room. So while ‘free’ may sound attractive in certain cases, there is often a downside.

Gain Sharing: We’ve seen some solution providers seek to get a percentage of sales or increase in margin that their solution creates for retailers. Historically, retailers severely dislike this model. Retail is too complex and dynamic, the retailer having no sure way to know that whatever revenue or margin gain is realized is attributable to a specific solution. So beware of the revenue share approach.

License: This is the most straightforward approach for software solutions today; a straightforward license model. This can be tiered based on retailer size (# stores or annual revenue) or can be tied to a per-store license model. We suggest you avoid a license model that is tied to the number of users or ‘seats’, that approach has proven very unpopular.

There are many variants on these and other pricing models, too many to get into here. The key message we want to convey is this: Keep you pricing model as simple and straightforward as possible and draw a direct connection between the cost to the retailer and the value your solution can create for them.


About the Author

Gary Hawkins is the founder and CEO of the Center for Advancing Retail & Technology (CART). He can be reached at gary.hawkins@advancingretail.org.


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