"competitive upgrade" - is it ethical?

[vlastimil]

Hi there,

just today I found out, my competitor is offering 40% discount to customers who already own my tool and he is calling it "competitive upgrade".

It is understandable that everyone wants as big market share as possible and providing an incentive to switch is not unheard of. But I still do not like it...

What do you think about the ethicality of such action? What would be your response if you were in my shoes?

I am considering returning the favor and offering "competitive upgrade" the other way, but maybe I should not.

Thanks for your opinions!

[phitsc]

I've seen this before, can't remember the product though (it was software). Didn't think bad about it, but that was obviously from a customer point of view.

The question is: why should someone who already owns your tool buy your competitor's tool (for whatever price)? The obvious thing I can think of is that he's not happy with yours. So if you think your tool is better than the competition, or offers something unique, I don't think you should be afraid of such an offer.

[f0dder]

Is it ethical? I definitely don't think so - but its a cut-throat world out there.

Personally I'd be pretty pissed if somebody pulled an action like that on me, but we have to deal with the free market... and as far as I know, there's no laws stopping people from the nasty price-dumping.

What would you gain from returning the favor? You'd (perhaps) get people buying licenses for your software at a crap price, in hope that they'll stick with your product, and (hopefully) pay for an upgrade later on. But the people you've just "gained" have just shown themselves to be "brand traitors"

[40hz]

I don't see where it's any different than offering your existing customers a substantial discount not to shop around for alternatives; or switch to a competitor's product. It's called an upgrade price - and software companies are routinely criticized for such price reductions not being large enough.

Competitive pricing (sometimes called "side-grade") is no different than any other loyalty incentive. It can be seen as either a reward - or a bribe - depending on your degree of cynicism and where you currently stand in relation to the product in question.

In most cases, a competitive upgrade amounts to nothing more than offering the so-called 'returning customer' price to a qualified 'new buyer.'

I don't think ethics is a factor at all. In capitalist markets, the whole thing is based on a Darwinian model of "last man standing." Think: economic version of the concept of "tough love."

The capitalist free market model also presumes that the eventual outcome of any market, once it reaches full maturity, will be the emergence of a 'natural monopoly' with one remaining supplier. In theory, that made them the proven 'best choice' by virtue of their survival.

If markets truly were 'free' and competitive, that notion would likely be true. But since they're not, it's little more than the topic of an interesting academic debate.  

Personally, I don't have a problem with businesses that offer incentive pricing.

[cyberdiva]

Personally, I don't have a problem with businesses that offer incentive pricing.

I tend to agree.  Speaking as a customer rather than a developer, I'd be delighted if I were given the opportunity to buy at a substantial discount what looked to be a better piece of software than the one I currently own.  But that would only be true if I were dissatisfied with my present software or I were really impressed by features in the competitor's program that mine didn't offer.  I've seen these kinds of competitive offers from time to time and have never been tempted by them because I was already happy with the program I owned.

[f0dder]

I've seen these kinds of competitive offers from time to time and have never been tempted by them because I was already happy with the program I owned.

I frown a bit when I see them - the developer part of me is slightly disgusted, and even the consumer part doesn't entirely like it.

Doesn't mean I wouldn't jump ship if the other product was substantially better than what I'm currently using, though

[jgpaiva]

After reading this, a question popped in my mind: how can the other vendor confirm that the user has a valid version of your software? If you're using a key-based authentication, nothing stops a user from just providing a random key.
I guess this would be a problem if you were to employ the same discounted price.

[vlastimil]

I doubt I'll lose a user due to this offer. I live in a happy delusion that my tool is better than his.  

What annoys me is the word "upgrade". That indicates superiority. And it isn't supported by any facts, not even by a biased comparison chart. It is one thing to believe that your software is better and another thing to offer an "upgrade" in the public.

It seems that the advice so far is "ignore it". I may do that...

jgpaiva, they require a copy of an invoice, but you have a point, it is very easy to fake it. This would actually be a very smart (and questionable) marketing tactic. I mean making it easy to fake it for the customer. Ugh, I hope it is not that.

[jgpaiva]

Personally, I think it's a good thing when a competitor recognizes your existence and needs to take measures to sell more than you, it means you're making something right

[40hz]

I doubt I'll lose a user due to this offer. I live in a happy delusion that my tool is better than his.  

What annoys me is the word "upgrade". That indicates superiority. And it isn't supported by any facts, not even by a biased comparison chart. It is one thing to believe that your software is better and another thing to offer an "upgrade" in the public.

It seems that the advice so far is "ignore it". I may do that...

I think you are best off ignoring it. Unless it begins to adversely effect your sales. At which time you should be more concerned about your product's quality rather than its price.

Most real studies have shown that something like 85% of all customers who switched to a competitor did so because the were unhappy with the service they were currently receiving; or because the product wasn't performing to their expectations.

Of the remaining 15%, less than half stated price was the sole determing factor for selecting another product.

In my industry, we have a saying. "Clients don't drop you because of the price. They drop you because of the price plus one other thing."

That 'thing' could be service, friendliness, competence, responsiveness, completeness of offering, or any combination of related factors. The point is that it's not just what you charge. (And anytime you do run into the rare customer who is purely motivated by pricing, I'd offer the following advice: RUN! You DO NOT want these people as your customers. They will drive you insane.)

So the real trick is to not provide that 'other thing' that makes people start shopping in the first place.

Note: I also wouldn't get too upset about unfounded claims or announcements of superiority on the part of your competitors. It's just ad-speak. The public is so inundated with that nonsense that they're completely oblivious to it by now. Most peoples' brains don't even 'process' advertising any more. They just filter it out.

Unless they're unhappy - and decide to start shopping because of it.  

Luck!

[Rover]

Ethical?  Heck no!  Why, the next thing you know people will be writing software for optional Donations!  Heck, they might even give it away altogether.

oh...   never mind. 

[40hz]

Ethical?  Heck no!  Why, the next thing you know people will be writing software for optional Donations!  Heck, they might even give it away altogether.

oh...   never mind.  

And some may even let you examine their code...and play with it...and even make new software out of it! For free too!

Man, I'm tellin' ya Rover...these people...they gotta be stopped. 

[attach]

[JavaJones]

Well, as someone working for a company that has been on the "other" side of this (we decided to offer a competitive upgrade of our product), perhaps I can provide a useful perspective. Personally I don't see it as particularly unethical, though I will agree I'm not a big fan of doing it, or the need to do it. Nonetheless I recognize it is sometimes a very important and valuable part of the sales/marketing equation, especially for smaller and up-and-coming products/companies.

The thing is large companies are often in a better position to offer such upgrades because they can absorb the cost better, so the balance is maybe not fair. Still it's a valid option for new software, and an important one when you consider the conflicting issues of 1: maintaining value perception of your product (do not price it too low or people will not respect it) vs. 2: providing some incentive for people to check it out/purchase when they may already be customers of an entrenched market dominator who  would otherwise be hard to compete against. I suppose that's really when I see it as most valuable and most ethical is in the case that the market you are in or trying to enter is already largely dominated by someone else. In that situation it's hard to gain a foothold without "unconventional" tactics like this IMHO.

40hz has some good points regarding the reasons why people tend to switch and whatnot. He's probably right, but I do think our short-term "competitive upgrade" sale helped us gain some customers from our competitor(s). The hope is that you gain them and then keep them through the upgrade cycle. Just getting people to try your product can be a struggle sometimes. We do provide a free version, so theoretically people should just decide from that, but the competitive sale did seem to help so it served some purpose. It may be telling that it was only a short-term thing and we're no longer doing it though...

As to the use of the word "upgrade", I think we said "sidegrade", which is perhaps more fair?

- Oshyan

[Eóin]

I agree with JavaJones that companies have to play a psychological game to get customers just to try products, and that in itself isn't unethical. But to me the key point is-

The thing is large companies are often in a better position to offer such upgrades because they can absorb the cost better, so the balance is maybe not fair.

Any time a larger company is operating at a loss to force competitors out of a market you no longer have self regulation. An at that stage you are no longer acting ethically.

[Dormouse]

You have to realise that people who have bought a competing product are a group of potential customers who have particular characteristics:

• they have already spent money on this type of product and spending the same again may be a step too far
• but this investment shows that they have a real interest/need for your type of product and may well be serial upgraders if you can get them and keep them happy
• if they have even just looked at your offer, you know they are at least somewhat dissatisfied with what they have

And the reason you offer upgrade deals anyway is because people in general are very unhappy about paying the full price on a regular basis. I can certainly see why competitive upgrade offers are seen as being a good strategy.

And there are swathes of the IT industry where attracting other vendors customers is the only game in town.

I also think it is B/S to think that this works better for larger vendors. Software usually has a relatively limited maintenance cost per customer, so each sale is pure extra money unless a discount just reduces the price for a sale that would be made anyway. My guess is that customers of other companies will relatively rarely want to buy your product at full price (unless it is a low price area where some people (naming no names) are happy to build up a whole collection of licenses). BDJ type sales may lose a few full price sales, especially for companies that do them regularly, but I think it would be very rare for this to be the case with competitive upgrades.

[Renegade]

As to the use of the word "upgrade", I think we said "sidegrade", which is perhaps more fair?

I've also seen "crossgrade" used.

[vlastimil]

Thanks for the opinions and advice given so far. 

It seems like there is a second group of people, who see this as a valid (although a bit aggressive) marketing gimmick and I should possibly return the "favor", although with less manipulative and more accurate phrases.

[JavaJones]

I think you should only "return the favor" if you think it will get you more new and *unique* sales. In other words sales that would not have happened without the discount. Not knowing your product or your competitor's, or the market, I can't say whether this is likely, but hopefully you can reasonably evaluate the likelihood and make a decision based on that.

I doubt you're considering doing it just because they are. There should of course always be a sound sales strategy behind such a move, and ideally your sales strategy would be more proactive than reactive. I guess maybe you thought you should possibly do it too, but were worried about ethical concerns, in which case I think from a customer standpoint people are OK with it, and clearly from a business standpoint your competitor has already done it so it doesn't matter in your case. Just don't let them draw you into a price war...

- Oshyan

[40hz]

+1 w/JavaJones

Doing it for any reason, other than a sound business one, is simple foolishness.

Because if your action is primarily motivated by the desire for "payback", it will only be a matter of time before your competition figures out which buttons they can push to play you.

When it comes to your competition:

Never complain. Never explain. Never ever let them see you sweat.  

[vlastimil]

JavaJones, 40hz, no worries, I did not plan to actually do it, I was just summarizing the suggestions in this thread so far.

JavaJones's guess was actually right, I have been thinking about doing something like this in the past and decided not to due to both ethics and economics. It would actually make more sense for me than for the competitor. He has an older product, he is a very good marketer, but in the recent years a bit lazy developer. I tend to focus on the product and neglect marketing hoping that it would pay off in the long run. He probably has more no-so-happy customers, while I probably have less, but happier customers.

Anyway, I also prefer coming with something new rather than just reacting in a predictable way. Here is a thought:
What if I offered my customers 50% of their money back if they switched to a competing product? Sounds crazy? What do you think?

[40hz]

Here is a thought:
What if I offered my customers 50% of their money back if they switched to a competing product? Sounds crazy? What do you think?

In the absence of more detail?  

Yes. It sounds crazy.  

How would you see that work for you? I'm not sure what message you would be trying to convey by doing that.

--/--

BTW: exactly what is your product? How about a weblink? Are you the same vlastimil that has apps up on the RealWorld Graphics website?

[app103]

Funny thing about competitive discounts...they don't prevent you from using the original application. They only make the competing application cheaper.

If I already am a user of Product A and take advantage of the discount on Product B, then I will have both A and B and be able to use both for whatever they are best suited for. And if I am entitled to lifetime free upgrades on both products, then I am the winner here, able to switch back and forth between applications as each improves and pulls ahead of the other.

If you are going to view the whole thing as a game of tug-of-war between developers, then understand that the user is on both teams if they take advantage of the offer for a competitive discount.

Offering a discount like that doesn't mean you will automatically gain users. It means that it might get users to at least download, install, and try your product. They may decide during the trial period that they don't like it and would rather stick with what they have, meaning they won't take advantage of your offer.

And your competition offering a discount doesn't mean you will automatically lose users, for the same reason.

So, ultimately, don't worry about the other guy offering a discount. Counter it with the same kind of offer to his users if you want, but work on making your application the best it can be and service to your customers the best it can be, because in the end, that's what really counts.

[Carol Haynes]

Trouble is where the big boys go the tiddlers follow (just look at activation methods for software).

Loads of big companies use/have used this as an incentive to steal customer eg. Corel Word Perfect Suite X can be bought at upgrade price if you have owned Microsoft Office XP or later.

There are similar deals from leading graphics companies etc.

It isn't really surprising it happens as the dollar/euro/pound/yen or whatever is king in business. It shouldn't be but it is.

Ethical? Not in my view but then who said business is ethical - the definition and obligations of a US corporation is to be as unethical as it can get away with.

My approach is to offer something different ... For example, I am building desktop computers for customers (for some reason I have had a sudden rush of orders). I can't compete with big box shifters and huge conglomerates in terms of rock bottom prices BUT I can offer a customised service that means the computer is built precisely the way the customer wants, it is delivered personally and set up at their home/office and generally I find I can offer higher spec products, with quality known brand components at similar price to off the shelf boxes. The other advantage is if the customer has a problem I am based down the road, they have my email address and phone number, they know where I live! So I have to get it right, and for the odd inevitable problem I fix it quick.

Attention to detail means I get lots of local recommendations.

OK the big businesses make a lot of money - but I am making a living and enjoying and feeling proud of what I am doing.

[Darwin]

So, ultimately, don't worry about the other guy offering a discount. Counter it with the same kind of offer to his users if you want, but work on making your application the best it can be and service to your customers the best it can be, because in the end, that's what really counts.

Excellent point, app. This is my view/advice as well.

[vlastimil]

I'm not sure what message you would be trying to convey by doing that.

The message could be: I (the author) am dedicated to keep the software top quality, if I fail and a competitor makes a better product, I'll give you some money back ... maybe min(competitor_price, 50% of paid price). And/or: buying this product is safer than the competing ones, if I (the buyer) make a decision that turns out to be wrong in the future, I get at least some of my money back.

I am not really a marketing type of person, so this may be a complete nonsense, or plainly not worth the effort.

(I did not want to post any links to keep the discussion as neutral as possible, but you guessed right.)