innovative pricing and packaging strategies

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Innovative Pricing and Packaging Strategies

Moderator: Joe AndrewsSr. Director, Marketing, Zuora

Joe SawyerVP Marketing, CareCloud

Andrew LandrumDirector of Finance,

Acxiom

Eran ShtiegmanVP Products, Fuze

Presentation: Matt JohnsonManaging Partner, Simon-Kucher & Partners

@JP_Sawyer@Acxiom @fuze

@andrewsjoe

Marketing Panel: Innovative Pricing and Packaging Strategies

Day 1:

11:15AM Moderator: Joe Andrews, Sr Director Marketing, Zuora | Matt Johnson, Managing Partner, Simon-Kucher

| Andrew Landrum, Director Finance, Acxiom | Joe Sawyer, VP Marketing, CareCloud | Eran Shtiegman, VP Products, Fuze

Marketing Leaders: Meet and Greet2:00PM

A Tale of Two Pricing Journeys: Evolving to Usage Models11:00AM

Todd Krautkremer, VP Sales & Marketing, PertinoJoe Hamlet, Sr Manager, Business Systems, SendGrid

Using Analytics to Optimize Revenue and Drive Profitability 1:30PMMatt Shanahan, VP of Product Strategy for Scout, ServiceSource

Day 2:

Innovating Subscription Business Models and Reinventing Your Go-To-Market3:00PMClodagh Murphy, Managing Director, Eclipse Internet

Marketing Track Agenda

Five Secrets for Your Pricing and Packaging Journey4:00PM

Guy Marion, Sr Director, Online & Acquisition, Zendesk

Simon-Kucher Capabilities Briefing 3

www.simon-kucher.com

Smart Profit Growth – Best practices in subscription pricing

Simon-Kucher & Partners

June 3, 2014

Matt Johnson

100 View St. – StreetMountain View, CA 94041Tel. (650) 691-3315Fax (650) 641-4317

e-mail: [email protected]

Simon-Kucher Capabilities Briefing 4#Subscribed14


Simon-Kucher at a glance

Source: German manager-magazin Aug 2007 & 2011 / Institute für Management und Beratung; Survey among 264 top-managers; Maximum 500 points

Global presence since 1986 Competence ranking "Marketing & Sales"

> 2,000 projects in past three years World market leader in pricing

No.1

1Simon-Kucher & Partners

2 Boston Consulting Group

3 McKinsey & Company

4 Bain & Company

5 Roland Berger

395

379

359

347

342

27 offices worldwide 700+ associatesAmsterdamBeijingBonnBostonBrusselsCologneCopenhagenDubaiFrankfurtIstanbulLondonLuxembourgMadridMilan

MunichNew York

ParisSan Francisco

Santiago de Chile

Sao PauloSingapore

SydneyTokyo

TorontoVienna

WarsawZurich

Pricing excellence

Growth and competitive strategies

Product portfolio (re-)design

Customer relationship and customer value management

Sales strategies and sales channel optimization

"world leader in giving advice to companies on

how to price their products"

"…the world's leading pricing consultancy…"

Peter Drucker"... in pricing you offer something nobody else

does."

"pricing strategy specialists"

Smart Profit Growt

h

Strategy

>400

Marketing

>500

Sales

>500

Pricing

>1,000

http://www.economist.com/


Simon-Kucher works with industry leaders in all sectors…

Source: Simon-Kucher & Partners.

TMT Consumer Industrials Healthcare Financial Services

Tech Consumer Brands Chemicals/ Construction

Pharma Banking

Media Retail Manufacturing Biotech Payments

Telecom Leisure Automotive Medical Devices Insurance

Top 25 largest companies



Simon-Kucher clients: 80%



http://www.toyota.co.jp/index.html


..and has deep experience in subscription businesses

B2B SaaS companies Transitioning to SaaS

Simon-Kucher has a long track record of helping companies accelerate their growth through effective pricing strategy and execution

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Consumer internet companies


Total

Pharma, biotech/medtech

Consumer goods

Financial services

Automotive

Transport/logistics

65%

35%

Global Pricing Survey:A minority of companies achieve pricing power

* High pricing power is the ability of a company to fully/almost get the money it deserves for the value it deliversSource: Simon-Kucher & Partners Global Pricing Study 8

High pricing power*

Low pricing power

“Pricing Power” assessment

53%

47%

30%

27%

19%

47%

53%

70%

73%

81%

Only 35% are able to get the prices they deserve!


Global Pricing Survey:Pricing power has strong impact on profits

Source: Simon-Kucher & Partners Global Pricing Study 2012/2014 9

133

100

Average EBITDA of last three years (index)

Companies with high pricing power

All others

“Pricing power” increases profits by

33%


The market has figured this out…and will reward you!

Source: Warren Buffett in an interview with FCIC, May 2011

"The single

most important

decision in

evaluating a

business is

pricing power."

Warren Buffett


Pricing Transformation

Use systematic process to identify opportunities to drive greater adoption, revenue, ARPU, profit

Quantify and prioritize business cases

Align on roadmap for tactical implementation & value capture

Top 10 pricing programs among subscription businesses

Monetization/Pricing Strategy

Evaluate new potential business/pricing models, (esp. transition to SaaS)

Identify optimal pricing and product portfolio strategies

Evaluate competitive positioning, identify white spaces, prioritize target markets & channels

Packaging & Pricing Optimization

Maximize customer lifetime value with packaging & pricing by… Driving cust. acquisition Exploiting differences in

customer needs & WTP* Encouraging up- & cross-sell Improving retention

Mobile Strategy

Determine how mobile best drives packaging & monetization strategy Design mobile channel/

offerings and pricing to extract full lifetime value: on-board, upsell, retain

Minimize cannibalization of other revenue streams

Demand Generation

Evaluate & improve effectiveness of promotions

Strengthen value messaging through better personalization & targeting

Enhance lead generation & prospecting processes

Online Sales Dialog

Drive conversion & upsell: Facilitate product & needs

discovery Ease product selection Create call to action Encourage upsell & cross-

sell Utilize consumer psychology

Retention & Churn Management

Identify key drivers of churn (predictive modeling)

Increase customer delight and engagement

Optimize save strategies and win-back offers

Assess needs & options for a loyalty program

Sales Force Effectiveness

Improve value selling and negotiation skills

Enhance key account management & negotiation approach

Design effective incentives & peer pricing

Provide relevant pricing guidance for Sales

Customer Segmentation

Determine differences in customer behaviors & needs and key drivers of willingness-to-pay

Classify distinct and actionable segments

Design packaging, pricing, & messaging to align with segments

Pricing Process/ Perform.

Measurement

Formalize best-in-class pricing processes

Ensure all key pricing activities have owners with clear accountability

Design performance measurement & tracking to improve visibility and decision making

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Source: Simon-Kucher

Best practice:Develop the key insights required for good pricing

Benchmarks & alignment

Sales deep-dive: Deal Reconstructions & Survey

Data analysis

SKP Scorecard used to benchmark pricing practices against hundred of companies

GoalStrat used to align executive stakeholders around real strategic tradeoffs

ImplementationDesignAnalysis1 32

Pricing stakeholder analysis

Transaction data:Sold-together, upsell paths, cluster analysis, win-loss....

Usage data:Feature value, product engagement, support patterns…

Deal reconstructions provide context-rich data points on process and skills best practices and breakdowns

Sales survey allows us to quantify deal-level pricing drivers and approach differences

Price Metric Evaluation Leaders/Fillers/Killers:

Packaging framework ComStrat

Competitive positioning PriceStrat:

Market price response



Best Practice:Test and refine subscription offering concepts and develop the tools and process to support the rollout


Customer/Prospect Research

Process Design

Financial Modeling Qualitative interviews:

Purchasing process, budgetary thresholds, metric acceptability

Quantitative survey/testing:Simulated purchase, packaging/pricing optimization, market share impact Org Design

Unit-level modeling:Deal structure tradeoffs

Packaging & pricing scenario modeling

Deal escalation structure:Levels of authority, checks & balances, basis for decisions

Revised sales incentives:Monetary and non-monetary value / price defense components

Revised Pricing Organization:Roles, responsibilities, and communication touchpoints

Internal / external skills requirements


Price optimization: Capture full value from your product


Goals

Features & value proposition

Target market & segmentation

Price structure

Price level

1

2

3

4

5

What are the goals for your product? Financial goals: # of users, revenue, ARPU… Customer goals: increase usage/engagement, virality,

loyalty… How to align with brand personality / perceptionWhat are the product’s main value drivers? Feature adoption and usage Feature value and willingness to pay Which features differentiate your product from competition?

Who are the ideal customers? Which segment should we be targeting? What drives differences in needs, behaviors, and willingness-to-pay

(e.g. Apple vs. Android, smartphone vs. tablet, US vs. intl) Mobile: Migration strategy vs. new customer acquisition strategy

What are the optimal price levels, given our goals… Financial goals, customer goals, brand personality Aligned with product roadmap and enables portfolio strategy

Positioning within your portfolio

4 What is the app’s role within your company’s broader portfolio? Facilitate penetration/customer acquisition, up-sell/cross-sell, or

retention? What is the potential for bundling the app with company online

offerings?What price structure will generate the highest mix of adoption and revenue? Paid vs. classic freemium vs. in-app purchases And if freemium, how should we fence the premium offering? If in-app purchases, what should we structure the upsell offers? Should we charge a one-time fee or subscription?




Value Selling Tools & Training

People / Process / Systems Support

Migration Plan & Financial model Value Selling Tools:

Deal pricing drivers, value messaging, deal analytics

Negotiation strategy & tactics:Best practices from external benchmarks and internally from Deal Reconstructions

Channel Partner Programs

Migration plan:Availability and communication strategy

Company level modeling:Migration tradeoffs and revenue evolution forecasting

Hire & train new team members

Pricing Program Office:Ad hoc support during transformation process

System/KPI recommendations

Channel partner strategy:Identify optimal channel partner mix and route-to-market

Channel partner incentives:Align partner rewards and pricing with value-add activities

Best Practice:Ensure a smooth rollout and maximum value capture

DEAL SUMMARY EQUINIX EXTERNAL KPIs

IBX (1-4): Term (months): Total Draw sold (kVA): # Cross-connects:

IBX (5-8): Billing start date: Allocated capacity (kVA): # Exchange ports:

IBX (9-10): IX MRR (as % of Total MRR):

SPACE & POWER RECOMMENDED PRICING (Full Detail)

EQUINIX COMPETITIVE ADVANTAGES IN THIS DEAL SPACE & POWER RECOMMENDED PRICING (Condensed)

1

2

3

4

5

6

7

8

9

10

CUSTOMER "FIT" WITH EQUINIX

6

-

20%

Network Provider density & low latency solutions

5 / 10 Medium priority to pursue

_NY7 36

01/31/20

Partner ecosystem density

NA footprint (# of sites & desirability of locations)

Global footprint (# of sites & desirability of locations)

_DC10 86

714

_DC4

Deal CriteriaCustomer Criteria

100%

14%

86%

6% 2% 0% 1% 0% 2%15%

0% 0% 0% 2% 0%

68%

10%

78%

List priceAvg. IBXdiscount Baseline price

Verticalimpact

Strategicimportance of

customer

Customerbusinessrationale Metered power

Expectedpower

evolution

Expectedspace & XCevolution Deal size

Free months /price

increasesContractduration

Annualescalator

Primary /redundantcircuit ratio

Paymentterms Target price

Balance ofPower Starting price

100%

14%

86%

6% 2% 0%10%

68%

10%

78%

List priceAvg. IBXdiscount Baseline price Vertical

Strategicimportance of

customer

Customerbusinessrationale Deal criteria Target price

Balance ofPower Starting price

SKP Molex Training Materials – June 15, 2010 - 12 -DRAFT – WORKING COPY

Group 1

Buyer Team

Seller Team A

Seller Team B

Group 2

Buyer Team:HAPL2Compete

against each other

Compete against

each other

Compete against

each other

Compete against

each other

Compete against

each other

Compete against

each other

Simulation case study: Annual key account contract negotiation

Seller Team A

Seller Team B

SKP Molex Training Materials – June 15, 2010 - 12 -DRAFT – WORKING COPY

Group 1

Buyer Team

Seller Team A

Seller Team B

Group 2

Buyer Team:HAPL2Compete

against each other

Compete against

each other

Compete against

each other

Compete against

each other

Compete against

each other

Compete against

each other

Simulation case study: Annual key account contract negotiation

Seller Team A

Seller Team B


Don’t lose in the final mile:Increase conversion through optimized sales dialog

Facilitate product & needs discoveryCreate differentiated free trials: one for consumers with an emphasis on sharing and privacy and one for Pros that includes full commerce

Introduce a guided product demo (for each type of account) instead of or in addition to the free trial (e.g. interactive tour through a fully functional, impressively designed site)

Test alternative trial formats, e.g.:- Extended trial (e.g. 30 days +)- Negative option trial

Ease product selectionDesign distinct and personalized sales dialogs based on entry point and customer segment (e.g. separate landing pages for Pros and Consumers based on adwords clicks)

Create messaging that communicates the value of each package to the targeted customer segment

Reduce friction throughout the process (e.g. by moving email input form after initial picture upload)

Create call to actionUse scarcity, herding, and limited time offers to generate urgency

Include option to sign-up on initial offer/pricing page (i.e. today's "features page")

Send promotions 7 &/or 14 days after trial period expiration to those who didn't sign up (e.g. discount off 1st year sub, gift credits)

Utilize consumer psychologyTest a substantially discounted first year (second year reverts to list price)

Change "trial language" to "First 2 weeks free, no commitment" to boost sense of ownership and engagement

Re-design offer/pricing page

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Pricing Psychology:Pricing models often assume the “economic” person…

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Source: Simon-Kucher project experience; numbers and client industry anonymized

…but buyer “economics” are heavily perception driven

Respondents were presented with the following breakeven scenarios (all fee calculations come out to be the same):

Fee Structure % Selecting

3.5% + $0.15 flat fee

$0.50Flat $ fee

5%Flat % fee

Indifferent

Fee Structure % Selecting

3.5% + $3 flat fee

5%Flat % fee

$10.00Flat $ fee

Indifferent

$10 item $200 item

For smaller transactions, consumers preferred simplicity / transparency ($1.00); For larger transactions, consumers preferred the most complex fee structure

For smaller transactions, consumers preferred simplicity / transparency ($0.50); For larger transactions, consumers preferred a more complex fee structure

Project Example:

Internet PPU


Source: SKP project 2012

Approach

Research showed that the entry package met large percentage of customers’ needs

As a result, we reduced value of entry package to better align with existing price point

New features were added and existing features shifted to premium tiers to justify higher prices

Before re-design: May 2012

After re-design: August 2012

May August0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Plus (55%) - $39

Plus (24%) - $39

Deluxe (32%) - $79

Deluxe (48%) - $99

(Price increase)

Elite (12%) - $149

Elite (21%) - $199

(Price increase)

Advantage (7%) $349

% of new subscribers New

tier

# of new subs 1,524 1,313 -14%

Average MRR per new subscriber

$66 $124 88%

MRR from new subscribers $100K $162K 62%


Case Study: Package & pricing re-design increased ARPU* by 88% & MRR* by 62%

Project Example:

SaaS


Anchoring effects: improving offer attractiveness

Source: Dan Ariely, Predictably Irrational, New York: Harper Collins 2008, p. 1-6

Options & results: Group 1

Option Price in US-$

% of people choosing

option

Economist.com subscription only $59 68%

Print + economist.com subscription $125 32%

Average revenue per subscriber $80.12

Options & results: Group 2

Option Price in US-$

% of people choosing

option

Economist.com subscription only $59 16%

Print only subscription $125 0%

Print + economist.com subscription $125 84%

Average revenue per subscriber $114.44

Subscriptions: Pick the type of subscription you want to buy or renew.

Avg. revenue per

subscriber: +43%

68%

32%

16%

0%

84%


Anchoring effects: another example

Source: SKP project, 2012

Current account €1 21%

Current account + Credit card

€2.50 59%

Current account €1 41%

Current account + Credit card

€2.50 78%

Credit card €2.50 1%

Group 1 Group 2

no. 140 observations no. 152 observations


Three Big Takeaways

22

“Power Pricing” = 33% increase in profits1

2

3

Analysis, Design and Implementation

Leverage customer psychology

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AmsterdamBeijing

BonnBoston

BrusselsCologne

CopenhagenDubai

FrankfurtIstanbulLondon

LuxembourgMadrid

MilanMunich

New YorkParis

San Francisco

Santiagode Chile

São PaoloSingapore

SydneyTokyo

TorontoVienna

WarsawZurich

100 View Street Mountain View,CA 94041Tel. (650) 641-4300Fax (650) 641-4317

www.simon-kucher.com

Thank you!

Andrew LandrumAcxiom

1. What does Acxiom do?

2. What is your role?

3. What is your brief pricing and packaging journey?

Panel Introductions

@Acxiom

Joe SawyerCareCloud

1. What does CareCloud do?



Panel Introductions

@JP_Sawyer

Eran Shtiegman

Fuze

1. What does Fuze do?



Panel Introductions

@fuze

1:

2:

3:

GROWTH: What are your top growth priorities and how does pricing and packaging support your growth?

CUSTOMER ACQUISITION: What is your view on free trials vs. freemium model and what are keys to success with each?

RETENTION & UPSELLS: What levers are you using to reduce churn and increase customer value?

Driving Pricing and Packaging InnovationPanel Questions

4: PRICE TESTING / ITERATION: How frequently do you test and what are you learning?

5: ADVANCED PRICING MODELS: What’s your experience and/or plans with usage-based, bundling, international, etc?

innovative pricing and packaging strategies

Technology

simonkucher capabilities

marketing sales

simonkucher andrew landrum

vp sales marketing

sr director marketing

pricing journeys

marketing panel

zuora joe sawyer vp