RE: Tiered pricing (was Tiger tools...)

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Most tier-based pricing strategies are implemented based on the recognition
of revenue based on the POTENTIAL processing power of the machine that the
software is running on.  There can be a very wide range of processor and
interactive CPW capability within a given software tier.  For example, at
the P50 level, the min processor CPW is 3660, interactive CPW is 120, and
number of processors is 8.  The max processor CPW is 20200, interactive CPW
is 20200, and number of processors is 24.

So, I price my software towards the middle of the capacity range and realize
that I may leave a bit on the table on the smaller, low-end machine deals,
but it will be made up on the larger, high-end deals.  As someone has
already said, a simple average cost across the board may be a hindrance, but
an average cost within the tiers is more reasonable (and palatable to the
customer).  Yes, the software is the same, but it is more valuable to a
customer that runs it on a 24-way 840 with 10,000 users than to a customer
that runs it on an 8-way 740 with only 200 users.

I can by little 6hp Poulan push mower to cut my grass for $200.00.  I can
also by a $2,000.00 John Deere riding mower to do the same job.  BUT, the
John Deere has the POTENTIAL of doing a whole lot more, so I pay for it up
front.  If I use the capacity, good for me.  If I don't, then perhaps I
overspent on my hardware and should pay more attention on my next purchase.

This really is a never-ending quagmire, especially since no one seems to
know the exact "formula" behind IBM's logic for hardware price calculation
as it relates to tier and CPW... what ever it is, it most certainly is not a
linear relationship.

Steven Martinson
Product Marketing Manager, iSeries and AS/400
PentaSafe Security Technologies, Inc.
http://www.pentasafe.com
Toll Free: 1.888.400.2834, x9585
Direct Dial: 1.713.860.9585



-----Original Message-----
From: Shannon O'Donnell [mailto:orion@auburnctnet.com]
Sent: Tuesday, October 30, 2001 1:25 PM
To: MIDRANGE-L@midrange.com
Subject: Re: Tiered pricing (was Tiger tools...)


I hate to do it :-) but I have to agree with Brad on this one.  I've never
held a very high opinion of tierd pricing, or vendors who price their
product based on that model.

The argument that you have to support more users on a larger box is not
relevant. Vendors typically charge one price, tier priced, for the software
itself, and then charge a secondary (monthly or annual) fee for maintenance.

There's no good reason why a vendor couldn't charge  a single fee for the
product itself, and then charge a sliding fee for the maintenance, based on
actual number of users. Wouldn't that be more fair?

I know of one example off the top of my head where a vendor (I won't name
names, but they are very big in their own niche in the iSeries market)
charges for their software based on processor group.  The customer that is
interested in their product could use their product...but they only have
about 10-15 users that will use it on their P40 processor.

The cost of the software at that processor group is well over $100K.  That
price doesn't change if the number of users goes up or down. It's based
soley on processor. So a company that has 200 users of that product is
getting a much better value than this other company with only 15 users.

Where's the equity in that pricing model?

In my humble opinion...and only my opinion...tiered pricing is nothing more
than a license to steal.

If I was selling a product, I'd have a hard time selling it based on tiered
pricing, and still being able to look myself in the mirror the next day.

My 2 cents.

----- Original Message -----
From: "Carl Galgano" <cgalgano2@ediconsulting.com>
To: <midrange-l@midrange.com>
Sent: Tuesday, October 30, 2001 1:09 PM
Subject: RE: Tiered pricing (was Tiger tools...)


> Brad:
> Isn't tiered pricing similar to user based pricing in some respects?
Bigger
> system = more users?  I am not saying I like it at all.  I need to buy CM1
> for a P30 and was quoted something like 35K, to one stinking RJE
> connection...... the customer almost passed out.... so I will buy it for a
> P05 box and move the files between the systems and save over 25K.  Does
this
> break the ethical code that was implied in our other discussion about
> TigerTools.  In effect, it is the same thing, isn't it?
> I also think tiered software pricing holds back hardware sales.
> cjg
>
>
> Carl J. Galgano
> EDI Consulting Services, Inc.
> 550 Kennesaw Avenue, Suite 800
> Marietta, GA  30060
> (770) 422-2995 - voice
> (419) 730-8212 - fax
> mailto:cgalgano@ediconsulting.com
> http://www.ediconsulting.com
> AS400 EDI, Networking, E-Commerce and Communications Consulting and
> Implementation
> http://www.icecreamovernight.com
> Premium Ice Cream Brands shipped Overnight
> FREE AS/400 Timesharing Service -
> http://www.ediconsulting.com/timeshare.html
> "You ain't gonna learn what you don't want to know" - rw
>
> -----Original Message-----
> From: midrange-l-admin@midrange.com
> [mailto:midrange-l-admin@midrange.com]On Behalf Of Brad Stone
> Sent: Tuesday, October 30, 2001 1:29 PM
> To: midrange-l@midrange.com
> Subject: Tierred pricing (was Tiger tools...)
>
>
> A lot of interesting points are being discussed here, but
> I'd like some simple answers as it seems tierred pricing
> always comes up.
>
> 1.  Besides the fact that it's the "norm", what reasons are
> given for the need to price software on a tierred level?
>
> 2.  Does the software for a larger machine require more
> coding, support etc. to make up for the difference?
>
> 3.  What other industries tier their pricing for the SAME
> product?  (ie gas costs the same for a ferrari and a tempo).
>
> Brad
> www.bvstools.com
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>



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