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Excerpt from the pricing section of The Product Marketing Handbook for Software

Pricing Guidelines

Despite the fluid pricing environment publishers find themselves in, there are some basic rules that should be considered (thought not slavishly followed):

• Do not calculate discounts by only considering retail prices; factor in discounted prices as well. Once these are factored into a pricing equation, it may become apparent that there is not much room to maneuver in the "middle" of a market's price structure. This is particularly true for retail software.
   
• Do not establish a price differential less than 20% of equivalent products. Doing so raises the "it's too good to be true" question in buyers' minds.
• For high-end and enterprise products, avoid "arbitrary" or "mid-term" price hikes. The best time to raise products is when releasing a major upgrade to your product; you can then justify your higher products by pointing to the increased functionality your product offers your customers.
• Remember that while buyers are excited by price cuts, the distribution system is often indifferent . (When they are not indifferent, they will almost always urge you to cut prices regardless of your product's particular market position.) In fact, a steep reduction in price lowers the volume of dollars flowing through the channel and can make other, higher-priced products more attractive.
• Using price to differentiate your product is most effective when the product is offered for less on a limited-time basis or as a competitive upgrade.
• Unless you are the undisputed market leader in your product category, do not try to change the existing pricing structure. Only a market leader can do that, and even they are very reluctant to do so. If you need or want to compete on price, use promotional pricing.
• Discounting against an established category leader with deep pockets is usually not an effective promotional tactic. In fact, history shows it is counterproductive in the long run.
• For high-end and enterprise-class software, consider developing or purchasing automated pricing configuration tools to simplify the process of buying and pricing different configurations of software and options.
• Do not forget to include services in your pricing equation. Integrating training directly into your product's pricing schedule, for example, can make help make your product more attractive to value added resellers (VARs).
• Do not include shipping and taxes in your pricing schedules, particularly for international sales. Tariffs can and do vary widely from country to country and can sometimes account for more than 100% of the cost of your software.
• Analyze where your initial customers are coming from. Are they emerging from your installed base or from a new cohort of users? If from your current users, they will expect to receive very favorable pricing.
• Track how quickly your market growing. In a slow growth product category, prices tend to be inelastic.

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