By Paul Solski, Founder, AIM International

Cloud computing brings immense benefits to customers by shifting the burden and risk of building, operating and owning the data center to cloud services providers and effectively turning IT into a pay-per-use utility. However, when IT becomes a utility, technology reselling partners are financially impacted by an ever improving self-service model, subscription pricing and the need to differentiate when their competitors are effectively offering the same utility. In this seven part series we look at how partners can package their own intellectual property (IP) assets to effectively differentiate and regain revenue lost to the cloud model.

In parts 1- 6, we looked how to identify your IP assets, chose the features that will align to specific customer scenarios and package them up. Here, we look at how to price your new product.

Pricing considerations

Taking into consideration the value of your product to the customer, your competition's offerings, the pull through effect on the rest of your business and common sense, the price for your packaged IP ought to be whatever the market will bear.

However, there are several pricing strategies that can also be used:

Value based pricing - customer ROI

If your product generates or saves the customer money then it may be possible to price your product on the basis of the value it delivers. A good rule for justifying an investment is that it will generate a 10:1 return. Of course common sense needs to be applied if the one time methodology returns vast amounts over a long period of time. For example, if your BI implementation methodology results in generating an incremental $100M in revenue to a customer, it would be hard to charge them $10M for the service. But the business case for the investment would be strong.

Market based pricing - competitors

If your product is better than existing products offered by your competitors, then you may want to price it relative to what they are charging. One strategy is to offer a better product at the same price as the competition does an inferior one so that customers perceive greater value in your offering.

Investment based pricing - investment ROI

If you have made a significant investment in developing and packaging your product then you may want to get a return on that investment in a predetermined time. Assumptions can be made about how many sales will take place over that predetermined time; you can then price the product accordingly.

For example, if the BI assessment service cost $50,000 to package and it takes 10 man-days to deliver at your cost of $1000 per man-day then if you charge $20,000 for the assessment, your profit will be $10,000 per assessment. Therefore, it will take 5 assessments to recoup the cost of packaging. If you expect to do one assessment per month, then it will take 5 months to recoup your investment.

Opportunity based pricing - pull through

If your product has a pull-through effect on other products and services your company sells then you may consider offering it for free, at low cost or applying its value as a credit towards a bigger purchase from you. Assessments are often priced this way.

For example, if your BI assessment is valued at $20,000 and your average BI solution costs $400,000 Then you may want to make the offer to the customer that the cost of the assessment, or some portion of it, will be credited to them if they go ahead with the BI solution with you. Otherwise they would pay the full amount.

Conclusion

The value added work your company has done for customers over many projects is your potential source of intellectual property. By packaging these assets as standardized products that can be sold repeatedly, this IP can provide your company with market differentiation and become a source of new revenue.

Combining this IP with a higher level of vertical industry knowledge and business processes expertise that helps customers better address their business challenges can lead to new and more profitable revenue streams for your company.

At a time of technology disruptions, these assets, which you control, may become essential to your business' continued longevity.

Note: If you would like the complete white paper, email the author: paulsolski@aimcorpinternational.com

If you are attending the Microsoft Worldwide Partner Conference in Washington D.C. you are invited to attend the session: "Differentiate Your US Partner Business by Packaging Your Own Intellectual Property" on Tuesday, July 15, 2014, 1:00 - 2:00 p.m.