subscribed world tour: pricing strategies for tomorrow
TRANSCRIPT
www.simon-kucher.com
How to win with New Price Models & Packaging
Pricing Strategies for tomorrow
Auckland, August 4th, 2015
Chris Petzoldt, Managing Director Australia / New Zealand
Sydney office
Level 32, Northpoint Tower100 Miller StreetNorth Sydney NSW 2060, AustraliaTel. +61 2 [email protected]
Zuora presentation 2015 - Simon-Kucher
Overview
Pricing – an increasing challenge
Capture value with New Price Models
Capture value with Packaging Strategies
Need help? Simon-Kucher can support!
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Zuora presentation 2015 - Simon-Kucher
Global Pricing Study; 1,615 companies across the world; 39% C-level executivesSource: Simon-Kucher & Partners
Simon-Kucher's Global Pricing Study 2014
report increasing price pressure83%
are in price war58%
price implementation rate – lowest number ever measured37%
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Zuora presentation 2015 - Simon-Kucher
Why is this so alarming?
-23%
-23%
-28%5% decrease in volume...
5% increase in fixed cost ...
5% increase in variable cost ...
Example profit & loss structure
Resulting decrease of operating income*
Fixed cost45
Variable cost45
5% decrease in price...Operating income10
Price = 1, Volume = 100Revenue100
4
-50%
Zuora presentation 2015 - Simon-Kucher
Global Pricing Study; 1,615 companies across the world; 39% C-level executivesSource: Simon-Kucher & Partners
Top solutions companies see to cope with increasing price pressure
Top options to escape oppressive market conditions*
12%
16%
19%
20%
26%
Share of respondents*
Introducing new, innovative, or differentiated products
Changing the revenue model and the way customers think about price and value
Strengthening sales & marketing functions to support value creation & communication
Reducing our variable or fixed costs
Changing mindset and confidence in our ability to implement higher prices
72% of innovations do not fulfil their KPI targets!
Most overstretched cost reductions already
Price models
Packaging
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Zuora presentation 2015 - Simon-Kucher
Overview
Pricing – an increasing challenge
Capture value with New Price Models
Capture value with Packaging Strategies
Need help? Simon-Kucher can support!
6
Zuora presentation 2015 - Simon-Kucher
Case 1: From fixed to success based
Situation & Challenge Solution
Project Example:B2B Marketplace
Global online platform to connect buyers and suppliers, secure invoice and payment capabilities, and software (buyers only)
Price model:
Membership model for buyers
Flat fee per relationship for suppliers with qualifying activity level
Challenges:
Limited number of buyers
No monetisation of network growth
Huge tail of small customers
One size fits all pricing created barrier to adoption by small customers
Breakeven
Total spend
total invoice value processed
“old” flat fee
Old price
New % of
spend
Revenue impact: + 300%
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Zuora presentation 2015 - Simon-Kucher
Case 2: From usage based to two-part tariff
Situation & Challenge Solution
Project Example:Rail operator
Long-haul passenger transport, regional passenger transport
Price model:
“Pay-as-you-go” for more than 100 years
Ticket price based on distance traveled
Challenges:
Increasing competition from low-cost airlines and private cars
Decrease in passenger numbers and revenue
More than 4m Bahncards soldIncrease in passenger volume
Revenue impact EUR 100m p.a.
appr. 1,900 km
Total spend
total km per
year
BahnCard 50%
“old” pay-as-you-go
140 € per year
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Zuora presentation 2015 - Simon-Kucher
Case 3: From fixed to customer value based
Situation & Challenge Solution
Manufacturer of truck tires developed innovative new tire that has a 20% higher durability
Price model:
Pay per tire
Discount for higher volumes of tires
Challenges:
Intense price competition across channels
No possibility to charge higher price for new, more valuable tire
New value proposition: Solution provider: "Keep your truck rolling"
New model: Price/km - trucker's cost aligned with revenue basis
New pricing perspective: Focus on TCO rather than unit price
Monetisation of innovation: "Automatically" higher price for better value (duration)
Project Example:Tire manufacturer
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Zuora presentation 2015 - Simon-Kucher
Simon-Kucher approach step 1: Assess customer value perception
Peter F. Drucker
"Customers don't buy
products, they buy the
benefits that these products
and their suppliers offer them."
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Zuora presentation 2015 - Simon-Kucher
Simon-Kucher approach step 2: Find price model that can capture the created value best
10
0%
fi
xed
10
0%
varia
ble
$
Fix price Flat fee
units
Pri
ce
Two dimensional
units
Pri
ce
PAYG
units
Pri
ce
Regressive
units
Pri
ce
Capped
units
Pri
ce
Fixed units
units
Pri
ceAdaptive flat
rate(for successive
years)
units
Pri
ce
Possible subscription models
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Zuora presentation 2015 - Simon-Kucher
Simon-Kucher approach step 3: Optimise price levels for new price model
Value drivers Price hierarchy Price thresholds
Competitive advantages and their value as a basis
for value pricing approach
Optimal price structure within one product
category based on value drivers
Optimisation of price points
Base prices on product value
Ensure consistent pricing logic
Fine-tune prices for consumers’ eyesG
oal
Meth
od
s (
exam
ple
s)R
esu
lts
Conjoint analysis Van Westendorp
Gabor Granger
Price Map
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Zuora presentation 2015 - Simon-Kucher
Overview
Pricing – an increasing challenge
Capture value with New Price Models
Capture value with Packaging Strategies
Need help? Simon-Kucher can support!
13
Zuora presentation 2015 - Simon-Kucher
Packaging cannot be that hard – can it?
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Zuora presentation 2015 - Simon-Kucher
Bad example: Packaging is more than A+B – 15%
This "trial" cost a high two-digit million figure
Manager at Rogers: "This was our first attempt. We just wanted to try out packaging. Meanwhile, we do a better job."
Conclusion: Poor packaging destroys value
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2008
Zuora presentation 2015 - Simon-Kucher
Bad example: There should be a package portfolio not an all-in
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Zuora presentation 2015 - Simon-Kucher
Bad example: Packages need to differentiate on relevant features
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A B C
Should these features be differentiated across packages?
Are these features valuable enough to
create up-sell?
Should these features be differentiated across packages?
……
…
…
Zuora presentation 2015 - Simon-Kucher
Well-designed packages create a win-win
Increased customer satisfaction Value capturing
Vendor perspective Customer perspective
Packaging
Receive discounts(or other incentives)
Exploit differencesin customer
willingness-to-pay
Enhance cross-selling
Compete on breadth of portfolio/solutions
Buy solutions, not products
Enjoy convenience (one-stop shop)
Reduce transaction/ search/delivery costs
Decrease pricetransparency
Reduce costs(Economies of scope
in sales/ops)
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Zuora presentation 2015 - Simon-Kucher
Packaging can exploit differences in willingness-to-pay
$
WtP
Co.
Profit
$
Co.
WtP
Profit
Volume
$
WTt*Co.**
Profit
Example
Customer with limited budget: $5
Max. willingness to pay for either coffee or cake: $3
Customer would buy either coffee or a cake
Bundle price: $5 customer buys both
Win-Win: Customer benefit = discount Provider benefit: 50 % more profit
Price $3 Price $3 Price $5
Individual customer's budget: €5
* WtP =Willingness to Pay** Co. = variable costs
Volume Volume
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Zuora presentation 2015 - Simon-Kucher
Simon-Kucher approach step 1: Define packaging strategy
Degree of complexity (# of offers)Simple Complex
Definition: One offer with all products & features included
Examples:Workday HCM
Definition: Packages which combine a variety of product categories
Examples:Fortknox
Definition: A variety of packages with increasingly more feature functionality
Examples:Xero
Definition: A variety of packages with implementation complexity limitations
Examples:US Sage Accounting
Definition: A build-your-own package approach with bundled discounts
Examples:Oracle
PriceBundling
All-you-can-eat
Categorybundling
Good/Better/Best:
Features
Good/Better/Best:
Complexity
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Zuora presentation 2015 - Simon-Kucher
Simon-Kucher approach step 2: Define package contents
... selected "leader" products
High value products / features that most customers want to or "must" buy.
Coke & Fries
... some "filler" product(s)
Medium value products / features that most customers consider "nice to have."
Coffee
... NO "killer" product(s)
Products which either have "own" willingness-to pay-or no bundle fit
A successful package consists of ...
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Zuora presentation 2015 - Simon-Kucher
Product/feature evaluation matrix
Identifying leaders, fillers, and killers using the Simon-Kucher feature evaluation matrix
1
2
3
4
…
Features/modules
Simon-KucherProject Example
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Zuora presentation 2015 - Simon-Kucher
Simon-Kucher step 4: Develop package portfolio and pricing
Good-better-best: Role based packages:
Packages with increasingly more feature functionality
Differentiation across customers based on value and willingness-to-pay
Need for behavioural tactics to steer choice
Packages that are targeted at specific types of users
Clear segments or use-cases drive package choice
Use cases don’t change over time (no upsell path)
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Zuora presentation 2015 - Simon-Kucher
Example impact of packaging optimization
Source: Simon-Kucher project example
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: After re-design:
May August0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Plus (55%) - $39 Plus (24%)
- $39 (re-duced value)
Deluxe (32%) - $79
Deluxe (48%) - $99
(Price in-crease)
Elite (12%) - $149 Elite (21%) -
$199(Price in-crease)
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%
Project Example:SaaS
Impact
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Zuora presentation 2015 - Simon-Kucher
Overview
Pricing – an increasing challenge
Capture value with New Price Models
Capture value with Packaging Strategies
Need help? Simon-Kucher can support!
25
Zuora presentation 2015 - Simon-Kucher
Source: manager magazine, August 2011/IMB, survey among German top managers
Simon-Kucher is the world’s leading advisor in Pricing
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1 Simon-Kucher & Partners
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Best consultancies in marketing and sales* manager magazine
World leader in giving advice to companies on howto price their products
Pricing strategy specialists
The world’s leading pricing consultancy
In pricing you offer something nobody else does
BusinessWeek The Economist
Professor Peter DruckerThe Wall Street Journal
World leader in pricing
Atlanta
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Ranked #1 in the last 2 surveys
Zuora presentation 2015 - Simon-Kucher
Source: Simon-Kucher & Partners
Simon-Kucher specialisation: Strategy, Marketing, Sales and Pricing
Pricing
Strategy Marketing
Sales
Strategic goals and direction Pricing strategy Growth strategies Business models Competitive strategy Market sizing/forecasts Market due diligence Corporate organisation
Customer segmentation based on value, needs, willingness to pay
Value and brand positioning Product and service development Portfolio design and management Marketing effectiveness and efficiency Customer retention and loyalty programs Up & Cross sell initiatives
Price models and bundling Price setting (launch and post-launch) Rebates, incentives and discount systems Price negotiation and key account pricing International pricing Price organisation and processes Price monitoring and controlling Pricing training programs
New channel development/partnering
Up and cross-selling Sales channel mix Channel incentives Sales force organisation Sales force performance and
compensation Negotiation support Sales force training programs
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Zuora presentation 2015 - Simon-Kucher
Simon-Kucher support clients across industries…
Dow JonesDuPont
EmiratesEuropcarFerrero
FreseniusGoldman Sachs
HoneywellHewlett Packard
HSBCIntelIveco
Johnson-JohnsonKiaKPN
Kimberly-ClarkLufthansaLA POSTELinkedIn
MedtronicMetLife
MichelinMicrosoft
NestleNikon
PermiraPorsche
RBSSAP
SiemensSingTel
SwisscomShellSkype
Smith & NephewTelefonica
TPGTNTUBS
VodafoneVolkswagen
Zurich
ABBAccorAdidasAllianz
Assa AbloyAudiAxa
BarclaysBayerBMWBosch
British Airways Caterpillar
CastrolCitibank
CitrixDaimlerChrysler
DB SchenkerDeutsche Bank
Deutsche TelekomDHL
AMPAshdown Ingram
BostikCastrolCoats
Commercialisation AustraliaCSR
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METAOptus
OutotecRexel
Rio TintoSanitarium
Secure ParkingSkaffoldSky NZ
Spirit of TasmaniaTapestry
Telecom New ZealandVodafone Fiji
Selected international referencesLocal
references(AUS/NZ/Fiji)
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References in the subscription space
Telco
Software & othersOnline
Media
Zuora presentation 2015 - Simon-Kucher
Selection
Axiata
Hutchison 3
Indosat
Macquarie Telecom
Optus
Ooredoo
SingTel
Telefonica
Telecom / Spark
T-Mobile
Vodafone
…
Abril
Bertelsmann
Bloomsbury
Fairfax
FAZ
PubliGroupe
Reed Business Infor.
Tamedia
Scholastic
The Economist
Wiley
…
Anchestry.com
Cars.com
ImmoScout
Gameforge
LifeLock
Manheim
Skype
Trulia
TotalJobs
…
Adobe
Advent
Activision
Citrix
Deutsche Bahn
FC Cologne
Intuit
Michelin
Microsoft
Paris St Germain
SAP
Ubisoft
…
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