Case study

Case study

Software pricing: issues of client billing
Infosys, one of the major IT companies in India, has developed a new method of pricing software maintenance project. The new method is called as ‘ticket – based pricing. The customer payment will be based on three types of client request or ticket. First, customer may request for small enhancement in the software application. Second, customer may request for big enhancement in the software application and third, request may be for a bug fix. Earlier the methods used for pricing were ‘fixed price’ and ‘time and material-based pricing’. Under the ‘time and material based pricing’, customers are billed based on the number of man-hours spent on a project, while under the fixed price, the customer pays an agreed price that doesn’t vary with the manpower deployed on the project.
Infosys developed this new pricing strategy after examining the current pricing methods. Software application methods become more stable after some time. If the client opted for fixed pricing and his request for software maintenance reduced, still has to pay fixed maintenance charges. Ticket based pricing will provide flexibility to the client. Many IT majors have been trying to decrease the dependence of revenue growth on manpower addition. But this is for the first time such an attempt has been made to bring a transaction-based pricing model. The new move is expected to increase the revenue without a proportional increase in the number of employees. Contrary to this view many industry observers still feel that fixed price or time and material based pricing provide continuous revenue. The excess revenue available from these two methods can be used for reserves or hedging. In case of ticket based pricing client has to negotiate with the company every time.

a. Do you think ticket based pricing will provide continuous revenue to Infosys in the long term? Comment
Answer: Since Infosys may have two type of client that is Big & Small.
a) General small kind of client prefers to outsource their project to avoid the expenditure incurred on the installation of software and maintenance. But because of the ticket based pricing strategy the small client will also think to install the software on the basis of requirement. I think ticket based pricing is one of the best strategy adopted by the Infosys which will definitely a source of continuous revenue in the long run because of the following reason, because now they know that they are able to upgrade or may fix the problem on the basis of demand arise end have to pay accordingly. They need not to pay the fix amount of money regardless of the work alone through which the share of market for Infosys will increase amazingly.
b) Due to the fearness of fix maintenance charged occurred while the fixing of problem any big or small enhancement the big client will generally install the software of which some of its feature may not be useful for the company at all. It may unnecessary become the capital burden for the company and Infosys may not get the business of after sales and service but because of this strategy the company will install the software according to the need and utility. Further the need will arise, the company will be required for the big enhancement or small enhancement of the software end the company have to pay accordingly.
In case of any troubleshoot in the software the company is asked to pay the large fix amount on the basis of installed software

b. Compare three pricing strategies discussed here and choose any one as your choice
Answer: In case of fix price the big client will prefer to purchase new software because the amount to pay for its fixing might have purchase the new one with the enhanced technology this will further shrink the market share and attract the new entrants in the market.
In case of time any material based pricing the company may not incurred profit because The Resource involved in the fixing of problem may be the greater than the actual cost received from the client. But now the company can decides the resource factor to oversee due problem and same the cost.