Sunsetting a Product: Pricing

It may sound odd that you need to consider pricing when sunsetting a product or platform but you do – at least in some form.  This is the final installment in a series on decommissioning or sunsetting a product.  First you must get data to know exactly what the situation is; second, you must craft your communication plan, and finally, you need to consider the financial implications.

Refunds

If you are truly turning a service off, or ‘going dark’, you may have to consider whether refunds will be required for your existing customers.  If your business model is one of pre-payment, then you need to look into contractual obligations, notice periods and financial true-ups.  The potential impact of refunds may even dictate your sunsetting strategy, so you can minimize pay outs.

Let’s consider an example.  The company charges annually for the following year.  For example, on November 1st, you are charged fordollar_sign2 November 1st to October 31st of the following year.  The company will need to research the month with the highest number of renewals and you might base your decommissioning date based on that information to minimize the refunds.  If sunsetting this product is a large and complex effort, you might consider a rolling project where customers are moved off of the product or platform as their services expire contractually.  This approach can take up to a year to complete, but that might be ideal in certain circumstances.

Incentives

Another potential financial impact is incentives.  If you want to encourage customers to move from one platform to another, offering incentives could be the right approach.  Incentives could be anything from discounted professional services, waived monthly service fees or credit towards future services.

When you are considering incentives, a good product manager should have a deep understanding of their customer base and what will drive them to action.  For example, in some instances, the customers actually want to move to the new platform and they are keenly aware of the enhanced feature set but they simply don’t have the time or resources to execute the actual migration.  If your company can offer an incentive to help with the migration, that can be a difference-maker for your customers.

Pricing

If you are encouraging customers to move off of a legacy platform and on to something newer, be careful with pricing.  It might seem advantageous to offer the new service for free or deeply discounted because it will drive the desired behavior by getting customers off of the  product or platform being decommissioned.  But remember that you will have to live with whatever pricing schema you present so be careful and prudent in your decisions.

One company that we worked with learned this lesson the hard way.  Because they wanted to sunset platform A, they offered customers platform B free of charge.  It was a low cost service and so the margin was more than made up for with other services.  This seemed like a good decision at the time and many clients took advantage of “free” and moved to platform B.  Fast forward several years and the company was ready to sunset platform B and  move customers to platform C which was a feature-rich product with a number of value-added components.  Because of the previous migration, customers expected platform C to also be free of charge and that was not a good business situation for the company.  A decision made to expedite one migration caused a bigger problem the next time around.

Decommissioning or sunsetting a product or platform is a necessary part of product life-cycle management and many product managers will be faced with this situation at some point in their career.  Having the discipline to gather the necessary data, craft the right communication plan and carefully consider the financial implications can lead to a successful project that can greatly enhance the company’s bottom line.  Happy sunsetting.

2 Responses to Sunsetting a Product: Pricing

  1. brian piercy says:

    Nice summary. I’ve linked to this page on reddit.com/r/prodmgmt.

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