Gartner reports that by 2020, more than 80% of software companies will change their business from traditional license and maintenance to subscription. As companies flock to the ‘as-a-service’ business model in record numbers, it becomes more important than ever for business leaders to get pricing right.
When sales negotiations were limited to a single transaction, you had less to lose. A missed first-time sale left the door open for a future opportunity, maybe through a product upgrade down the road. With a subscription model, it’s more difficult to unseat a competitor, because the competitor is already using important data to personalize services for their customers. Simply put: When you lose a deal today it makes customers that much harder to acquire over their lifetime. A lost sale is no longer just a transactional, one-time loss: customer lifetime value is now at stake. In this new environment, many companies are still relying on averages to understand their customers, but that’s not enough. Dozens of new metrics and KPIs have emerged, and you have to access and interpret these new data points for deeper customer insights that impact renewal rates and customer attrition.
The old way of doing business can’t help you identify the value of a good customer so you can accurately align pricing while at the same time creating personalized offers to win market share for those who bring you lifetime value. But machine learning and pricing algorithms can. Through customer consumption, you’re able to use more precise data to gain the most accurate pricing insights. This data drives customer loyalty and stickiness in new ways. When you continually provide improved value, it’s more difficult for a competitor to unseat you.
To truly gain a competitive edge as you move to a subscription service business model, or take your current service to the next level, a machine learning platform with pricing algorithms is the only way to derive greater power from the data that informs customer lifetime value and the price for acquiring a customer.
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About the AuthorMore Content by Charles Sweeney