Projects Possible

I work in the software industry and recently in my conversations with a few of our customers I was told that the perception they have of our company is that we nickel and dime them to death.  I of course wanted a little more information and so I probed a bit to find that the customers I was talking with did not like having to pay for additional software functionality that they believed should be included in the base package that they paid for.   Their opinion and belief was that annual support contacts and maintenance fees should allow them to take advantage of any and all applications that our company develops throughout the year.  While I can’t argue that there should probably be some of these things, there are others that I just can’t imagine making available to the masses as no-charge upgrades or addons…  So the question then becomes what should and shouldn’t be offered free of charge and what should and shouldn’t be charged for.

Incremental upgrades is something that I’ve always come to expect.  When I’m told that we XYZ new application and that it works great with what you have but you need to upgrade to the Professional Version of the application and have to try to then cost justify if feature ABC and 123 of new application XYZ are worth the fees being charged.

There are really two schools of thought here and Seth Godin does a great job on his blog discussing them. 

1. Charging for additions, upgrades, addons, etc… is a way of increasing the revenue stream and profitability.  The thought here is that you charge those that want all of the bells and whistles more than you would charge those that don’t want them and you make your entry level an affordable option.   There is also the added bonus that once the customer is hooked it is much easier to sell them on the value of the additions.
2. Give your customer’s more!  Just give them the addons, upgrades and features.  Make it difficult for your competitors that are stuck in the first model to compete with you.   The key here is to do a serious analysis of what it costs to create the thing you are going to give away and what the potential for revenue in the first school would be.   Wherever possible we want to show customers the value of their decision to be with you instead of a competitor.  Make a big deal out of the fact that you gave them something - not just a bug fix, and they will let all of their friends know that you are progressive thinking and that you move with the industry. 

The principals apply to lots of things…  Recently we returned from a cruise vacation.  Cruises are typically sold as the all-inclusive vacation.  While there are probably ways that you could do this.  I found that I was constantly being nickel and dimed.   Come on guys… charging people for a soda pop while they are sitting by the pool, or better yet $10.00 a person to eat in an “exclusive” dining room.    These items are very low cost to the cruise line so any charges at all are HUGE margin for them. 

Regardless of the school of thought - they whys and how comes - in this day and age customer satisfaction is key to success.  I won’t say that either method is necessarily good or bad I think they should be balanced.  Obviously businesses need to make a profit but when your customers tell you they feel they are being nickel and dimed to death maybe it is time to re-evaluate your strategy?

This post was read 164 times until now