WHY SHIFTING FROM COST BASED SOLUTIONS TO OUTCOME-BASED SOLUTIONS IS CRUCIAL?
The prime objective of service providers is to regulate their activities in a direction that fulfil business goals when looking to modernize technology solutions. It is important to proceed with the correct strategy that helps achieve success and growth for the concerned business. As an organisation becomes more complex, identifying these business drivers becomes more difficult and hence the industry and market themselves define their drivers that help implement advanced technologies.
While commercializing is creating opportunities for customers of information technology services, it is simultaneously creating new challenges for the service providers.
Pricing strategies are one of the most important challenges and decisions for today’s IT service providers. Costing strategies for IT services have usually focused on covering costs, attaining desired margins, and challenging the competition.
When a company uses cost-based solutions, the organization sets up a price based at a percentage above the cost it incurs to manufacture the product or to provide the service. The planned strategies relate to the organization’s decision to fixate the price of a product on the costs of production rather than external factors such as competition or the economic environment. This is a conventional approach to pricing which may be appropriate in stable markets where competition is moderate. The cost-based pricing method is widely used by industries such as utilities, contracting, building IT solutions, engineering firms, consulting services, etc. In the case of professionals like IT consultants, engineers, etc., ‘service fee ‘ is the pricing strategy used. This is based on the cost of time involved in providing service.
Outcome-based pricing is a strategy of setting prices primarily based on a consumer’s perceived value of a service. Value pricing is customer-focused pricing, meaning companies base their pricing on how much the client believes the service is worth. Companies that offer exceptional or highly valued & unique features in services are better positioned to take advantage of the value pricing model than companies that chiefly sell commercialized services. Any company involved in value-based solutions must have a service that differentiates itself from the competition. Speaking in literal terms, the product must be customer-centric, meaning any advancement and added features should be based on the customer’s needs and wants. Of course, the service must be of high excellence if the company’s management is on the lookout to have a value-based pricing strategy. The company must also have open communication channels and strong relationships with its customers. In doing so, companies can obtain feedback from their customers regarding the features they’re looking for as well as how much they’re willing to pay.
Technology changes within service vendors have typically been driven by challenges related to infrastructure management and the assurance of service supply. However, new business drivers are now more relevant when evaluating the need for an advanced technology solution. Major factors reckoning for this price pressure comprise the increasing intricacies of CIOs and other tech buyers, startups with competitive pricing strategies, and the wide accessibility of open source software and free offers. Such price pressure, combined with internal and external imperatives to deliver volume, results in rapidly declining prices, threatening the long-term profitability of tech players
Solutions in the market must provide a full scope that helps organizations to operate efficiently without incurring great costs and efforts associated with the integration of several systems and, at the same time, that allows the timely response to the demands of a highly changing industry.
Why Value-based Solutions are Better than Cost-based Solutions?
- Separates time from profit: Your potential profit is no longer connected directly or indirectly to the number of hours you work, but it is based on the best value services you provide. Winning such a deal requires strong technical, analytical, and communication skills.
- Helps you develop higher quality products using the new age technologies: Taking the client’s opinion will help you discover what solutions people want to find within your products and features. Through this perspective, organizations generate new concepts on how to continue advancing your solutions. Progressing your services means finding new ways to excel what’s already been built and where you can add, improving efficiency and productivity.
- Proves real willingness to pay data: The client’s willingness to pay data requires some serious sweat & efforts, but it’s worth the work. Again, willingness to pay is the maximum amount a customer is willing to pay for your services. It varies based on a series of factors but is one of the best means to envision overall demand at any given time. The analysis behind a value-based strategy provides real data that gets you into a profit-generating solution. Knowing what your clients are willing to pay for your service is essential in building an effective and competitive solutions strategy.
- Improves future collaboration & engagement: Clients who know how much they’ll be charged in advance while getting the outcome they have been waiting for, are more likely to communicate & engage better with you. This improves collaboration and helps an organization in delivering the best solutions using the best suitable technologies — which helps keep the client satisfied. It also helps you excel & up-sell your other domains.
Wrapping up, the above concept clearly states how outcome-based technology solutions can help organizations work efficiently without adding extra costs associated with the inclusion of different systems and ensures timely delivery to the customers in a volatile industry. It is always better to approach a professional software development solutions provider that believes in providing value-based solutions to its customers along with promising excellence in their field of work that will help your organization in navigating towards the right future.