It appears that not only is the pricing very dramatic on a year-end level, but that those prices cuts will continue into the future. This has some rather large implications. Not only is CRM saying that it is offering customers up to 40% discounts to sign up “before year end” (CRM’s FYI 1/31/12) but it is also guaranteeing those low rates on future renewals and for additional users.
Here is the e-mail (click image to enlarge):
This leads to a couple of implications:
- As we discussed last week, it means either Q4 is looking a bit like more of a stretch for the company, and it is beginning to get a bit anxious about reaching its revenue number, or competition is becoming more intense faster than assumed.
- Looking ahead, the company is discounting revenue numbers into the future while fix costs continue to rise - this is never a good sign.
Typically your “new buyer” discounts are one-off events. The discount is for the number of users you have for a defined time period, and then your pricing reverts to regular rates (or it is supposed to, and some middle ground is agreed to upon renewal). What CRM is doing here is not only guaranteeing that lower rate now, but into the future and for additional users. It is a bit like your local auto dealer leasing you a car, then telling you when the lease expires you can have the exact same lease on another one and if anyone else in you family ever wants to lease they are guaranteed the same rate also. It would never happen.
If you are going to lower your rates up to 40% and keep those rates lower into the future, then isn’t that just a de facto permanent price reduction of your product? What is the next step? Current customers, seeing the large pricing discrepancy between what they are paying and what you are offering new people, start calling and demanding that pricing.
While you may resist at first, they will remind you they are now taking calls from sales folk from Oracle (NYSE:ORCL), IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT) all of which now have competing products. If they do not get the price reduction they want, more likely than not they will receive some other value (free support, etc). Either scenario means lower revenue per account and/or higher costs associated with a stagnant per-user revenue stream.
One thing is for sure, I think it is safe to say price increases are not in the future for CRM users.