Development of Value-Based Pricing Model for Software Services

Abstract

In an effort to improve profits, most contemporary businesses are implementing operational cost based engineering initiatives and measures for pricing services. However, service provision requires business executives to have a comprehensive understanding of the meaning of 'value' as a guide to strategically price services in order to improve profitability. This paper makes an effort to present a theory of value -as a customer prerogative of service utilisation. The research aims at developing a pricing model to utilise, communicate and capture the value of a service provided by a service provider. It takes a new approach of focusing on the external value as perceived by the customer and advocate matching price to value. The paper helps both; the customers and the service providers to achieve business growth by commanding the right price for the software services. The ultimate goal is to match the price the customer pays for a service expected to deliver outstanding value.

Impact of pay-as-you-go Cloud Platforms on Software Pricing and Development: A Review and Case Study

“…Since the '90s there has been studies on establishing a fair price for software [5] and new issues have been addressed recently. One of the recent research topics concerns the differences between the traditional, perpetual license model and the new software as a service (SaaS) model [12]. Beyond the SaaS pricing model issues, different studies on software pricing have been developed, including: models using the value added to client's business [12], studies based on stock market [16], pricing based on cost accounting [19] and use of price sensitivity in order to identify features that should be prioritized [10].…”

“…One of the recent research topics concerns the differences between the traditional, perpetual license model and the new software as a service (SaaS) model [12]. Beyond the SaaS pricing model issues, different studies on software pricing have been developed, including: models using the value added to client's business [12], studies based on stock market [16], pricing based on cost accounting [19] and use of price sensitivity in order to identify features that should be prioritized [10]. Even with so many different studies, software pricing involves basic elements that can be applied to all models [5], as summarized in Table 1).…”