Hot Topic:
Euroland and Pricing Transparency?

The subject of European pricing and the implementation of the Euro-zone have never been more topical, with consumer strikes in Greece, and German complaints about the "round-up" effect of the Euro. European Commission price monitoring suggests that overall the Euro has had very little real impact on pricing. In fact, some costs have actually decreased or stayed below the rate of inflation. But what about software, and in particular CAD software?

In theory, the Euro helps to produce an open market, with open and transparent pricing and no regional differences to speak about. Prior to this, each country had it's own price ranges for CAD software, which often bore no relation to the prices charged in a neighbouring territory.

In the bad old, good old days…

The UK was the cheapest place to purchase software in Europe. Since most software came from the USA, and the UK was generally the first-stop for American companies entering Europe, this was not surprising. Pricing policy for these companies for some time was quite simple - for dollars on a price, read pounds. Effectively this meant the uplift was linked to the exchange rate between the US dollar and the UK pound.

SolidWorks was one of the first vendors to adopt a European, rather than country, pricing policy. From the time that the price was fixed, changes in the US$ rate against individual currencies meant that some country dealers found that they were paying more in local currency for each copy of SolidWorks than other regions.

But a consistent European target price was hard to maintain as the short term fluctuations in exchange rates produced a range of over 10% in the price.

…and now, in the shiny new Euro-zone?

Early attempts to set European pricing regimes were thwarted by constantly changing exchange rates that, even over a short period of time, started to diverge. We looked at European pricing this summer, to see if the Euro-zone has effected a more uniform regime on list prices. We found that the euro price tended to be consistent across the Euro-zone and the UK is much closer to the European average than before.

The resellers still experience difficult times when rates move so much in an individual month, yet their supplier expects to be paid a fixed amount in $US per license. For some products Germany was charging a small premium compared to other Euro-zone members and Italy had the lowest list prices. The UK, however, was the lowest of the countries surveyed.

List price is not the whole story

Hidden in the absolute pricing evidence is a change that is taking place in the way in which vendors are selling their products, which in turn has an effect on pricing and in particular, the discounts that are available to customers. Many vendors are changing the way their channel supplies end-users, effectively turning them into agents, rather than re-sellers. The contract for use of software is now directly with the software developer, rather than a local dealer, so that the software vendor has greater control of the end-user price. Previously, dealers may have competed with each other and the end-user could get substantial discounts on the list prices of software. With the new contracts, the software developer sets the final price and the old re-seller, on a reduced product margin, must re-invent the business to provide value-added services, rather than simply product availability and discounted prices.

Conclusions

We expect to see more developers selling directly, either with account salesmen, agents or via an on-line store, to the end-user, whilst more software subscription services are set to replace product upgrade and new version sales and traditional annual maintenance contracts. Whilst the Euro-zone has had an equalizing effect on pricing and pricing transparency, changes in the management of reseller channels are likely to have a much more far-reaching effect on pricing and discounting than the introduction of the Euro itself.

Nick Ballard

Also in this issue:

Feature Article: A fistful of orders?
Times are tough. The vendors have sent their toughest sales representatives into town, but they've come back bruised from the encounter saying they were beaten by "the user with no budget". What next? Mike Evans has some ideas to share.

Planning for 2003: Still arguing over your 2003 quota?
2003 could be OK for Enterprise Applications vendors, but Engineering Applications vendors will have to focus to avoid the worst of the market downturn according to Dan Roberts.

Book Review: Convergence Marketing
Bob Brown reviews a book which lives up to the old adage; you can't judge a book by its cover.

Cambashi researches best practice and assists IT suppliers in best practice implementation. For more information on Cambashi services please email info@cambashi.com

e-Xpertise in Industry operates as an opt-in email. The opt-in policy means we never intentionally send any email to anyone who does not wish to receive it.

To subscribe: send an email with the word "subscribe" in the subject line to : expertise@cambashi.com

© Copyright 2003 Cambashi Ltd

back to top