Getting more by charging less

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Software developer Alibre markets its high-end computer-aided design (CAD) application to manufacturers, inventors and hobbyists looking to generate 3-D models of new products or spaces. Last summer, Alibre, looking to boost sales in the midst of the recession, decided to do something extremely risky: It dropped the price of its base product—Alibre Design Standard—which in the past had sold for $999 per seat to $99. Maintenance and support, which at the time cost $299, was not included in the $99 price. The company was hoping the new, lower price would get people to try out the program and possibly upgrade to one of the other versions of the program—either at $2,000 or $5,000.

“We had a lot of internal debate about it, and there wasn’t universal approval. I knew it was risky, but it was something I wanted to do to take some risk to get some attention,” said J. Paul Grayson, chairman-CEO, Alibre. “It was a once-in-a-lifetime opportunity to launch a marketing program that would really get some attention.”

Alibre marketed the program using outreach to bloggers and online technology sites. The company also debuted its own blog post and publicized it socially. “We contacted the best bloggers and let them know we were getting ready to launch the initiative. We knew that people would write about it,” Grayson said. The company was also hoping that the bloggers would take the new program viral, tweeting about it or posting about it on industry forums.

The response from the industry, as well as from previous and new customers, varied. “It generated a fair amount of controversy,” Grayson said. “We had a lot of customers asking how we could sell a product at $900 off, and other people saying the move was desperation on our part. No matter how you look at it, though, it generated an enormous amount of buzz and news coverage.”

It also generated at least a little ill will. Alibre was forced to deal with a segment of customers who—after purchasing the product at the $1,000 price point—were upset. “We talked to them and, if possible, gave them an upgrade to the next version or gave them free maintenance so they felt like they were getting a better deal.”

Even with the negative response, the pricing move and marketing campaign that supported it had a huge effect on the company’s bottom line, Grayson said. Last August and September, when the offer was being heavily promoted, Alibre saw four times its normal sales volume and revenue that was 40% higher than the two previous months. The program was so successful that the company decided to stick with a lower price point for its entry-level product.

Today, the revamped product lineup includes the $99 Alibre Design Personal edition, a Professional edition pegged at $599 and an Expert version, which sells for $1,199. Even with the lower price points, the strategy seems to be working, Grayson said. “Our volumes [today] are more than double when you compare July 2009 to July 2010, and revenues and profits are higher, too,” he said. “We’re also seeing increased market share.”

Grayson said he would suggest that every company look at pricing, especially now when, “frugality is fashionable.” If you do embark on such a program, marketing becomes a huge enabler, he said. “Companies can use price as part of their messaging to customers to let them know that they understand the financial pressures everyone is under.”

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