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Value Add or Added Value

June 14th, 2010 | Pricing

At what point do you charge for your add-ons (or plug-ins or add-ins or anything other term that might apply)?

If you follow the edict (yes, edict) that value determines prices that determines cost, then your add-ons have value (assuming the cost is greater than zero) and therefore have a price that is greater than zero. So why offer them for free?

One school of thought is that they are bundled within the price of another component. That is fair, but have you truly factored in the price of the add-ons to increase the price of the bundled product?

Another school of thought is that we offer them for free to encourage additional use, extend the reach or just general goodwill. I wonder though, if offered for free does this truly dictate less value for the customer and de-motivate them from using or is this my product management hat telling me free offers no value?

Any stories to share on the topic?

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    • http://www.zoso.in Sridhar

      AFAIK in the CAD market, Add-Ins are usually developed by the product eco-system instead of the product developers themselves. So these Addins are usually offered for free with basic functionality (minimum issues ) and users if useful, would purchase them from the developers of the plugins.

    • http://www.strategicproductmanager.com/ Stewart Rogers

      Great example. I am guessing then you have an add-in framework and the cost of that is built into your product.

    • http://www.zoso.in Sridhar

      AFAIK in the CAD market, Add-Ins are usually developed by the product eco-system instead of the product developers themselves. So these Addins are usually offered for free with basic functionality (minimum issues ) and users if useful, would purchase them from the developers of the plugins.

    • http://www.strategicproductmanager.com/ Stewart Rogers

      Great example. I am guessing then you have an add-in framework and the cost of that is built into your product.

    • http://www.onproductmanagement.net Saeed Khan

      Stewart,

      There needs to be an overall system value view when looking at things like addons etc.

      Does the extra functionality have value on it’s own and for a specific audience, or does it provide general additional value to most users of the product?

      e.g. if an addon package is specifically target at a vertical — e.g. finance — it may make sense to determine value and charge for it.

      Keep in mind that the addon will likely need it’s own stream of enhancements, support etc. and the users of it may have specific requirements that are not valuable to the general audience.

      OTOH, a more generic addon that “improves performance” (for example) and has “value” to most customers is something that people will likely expect is free or included in their maintenance etc.

      There’s a strategic aspect to this as well. How do you want to grow you market and ecosystem?

      A healthy ecosystem of 3rd party addon products can enhance the overall value (through perceived size, marketing breadth etc., differentiation etc.), but that ecosystem needs to be viable and buyers need to be comfortable purchasing addons from 3rd parties (which is not always the case with enterprise software).

      Overall, choice is not a bad thing, but there are a lot of factors that need to be considered, and strategically, it must be decided whether breadth of offerings (plural) or depth of offering (single) is more important to the company and how they deliver (and derive) value.

      Saeed

    • http://www.onproductmanagement.net Saeed Khan

      Stewart,

      There needs to be an overall system value view when looking at things like addons etc.

      Does the extra functionality have value on it's own and for a specific audience, or does it provide general additional value to most users of the product?

      e.g. if an addon package is specifically target at a vertical — e.g. finance — it may make sense to determine value and charge for it.

      Keep in mind that the addon will likely need it's own stream of enhancements, support etc. and the users of it may have specific requirements that are not valuable to the general audience.

      OTOH, a more generic addon that “improves performance” (for example) and has “value” to most customers is something that people will likely expect is free or included in their maintenance etc.

      There's a strategic aspect to this as well. How do you want to grow you market and ecosystem?

      A healthy ecosystem of 3rd party addon products can enhance the overall value (through perceived size, marketing breadth etc., differentiation etc.), but that ecosystem needs to be viable and buyers need to be comfortable purchasing addons from 3rd parties (which is not always the case with enterprise software).

      Overall, choice is not a bad thing, but there are a lot of factors that need to be considered, and strategically, it must be decided whether breadth of offerings (plural) or depth of offering (single) is more important to the company and how they deliver (and derive) value.

      Saeed