Post on 16-Mar-2020
www.simon-kucher.com
Simon-Kucher and Partners
Licensing Model Transitions
2016
Silicon Valley Office
100 View Street
Mountain View, CA 94041
Cell: (650) 691 3315
Joshua.Bloom@simon-kucher.com
World leader in giving
advice to companies on how
to price their products
Pricing strategy
specialists
The world’s leading
pricing consultancy
In pricing you offer
something nobody else
does
Simon-Kucher & Partners at a glance
BusinessWeek The Economist
Professor Peter DruckerThe Wall Street Journal
1 Simon-Kucher & Partners
2 Boston Consulting Group
3 McKinsey & Company
AmsterdamBonn
BrusselsCologne
CopenhagenFrankfurtIstanbulLondon
Luxembourg
Madrid MilanMunichParisWarsawViennaZurich
TorontoBoston New York
San Francisco
São Paulo
Santiago de Chile
Dubai
Beijing
Tokyo
Singapore
Sydney
30 offices worldwide, >1,000 employees
>$250m in revenue
Strategy
> 500
Sales
> 500
Marketing
> 500
Pricing
> 1,500
Growth and competitive
strategies
Product portfolio
(re-)design
Pricing excellence
Customer relationship and
customer value management
Sales strategies and sales
channel optimization
World leader in pricing
Global presence >3,000 projects in the last 2 years
Best consultancies in marketing and sales
manager magazine
Source: Simon-Kucher
3
AtlantaMountain View
Simon-Kucher Global Pricing Study of >2k companies
report increasing price pressure83%
are in price war58%
Price increase achievement -lowest number ever measured37%
Source: Simon Kucher Global Pricing Study 2016; >2k companies across the world; 39% C-level executives
4
Global Pricing Study; >2k companies worldwide; 39% C-level executives
Source: Simon-Kucher & Partners
How do companies seek to achieve Pricing Power?
Top 5 options to escape oppressive market conditions*
12%
16%
19%
20%
26%
Share of respondents*
Introducing new, innovative, or differentiated
Changing the revenue model and the way
price and value
Strengthening sales & marketing functions
creation & communication
Reducing our variable or fixed costs
Changing mindset and confidence in our
higher prices
5
Questions for the audience
Now have many have actually
gone through with it?
How many of you work in a
company that has recently
considered changing their price
model on at least one product or
service?
6
Global Pricing Survey:
2/3 of the companies working on new price models
29%
37%
12%
22%
Do you think about
changing your price model
because of pricing pressure?
Yes –
actively
planned
Yes –
vague
initiative
No –
never
thought
about it
No –
thought
about it but
declined
7
To drive recurring revenue, your goals are to:
Awareness
Traffic / Leads
Conversion
Win-back
Advocacy
Acquire
more customers
Price
ARPU
Monetise
your customers
Lifetime
Churn
Loyalty
Retain
your customers
Revenue growth
Simon-Kucher & Partners_Monetisation strategies for subscription businesses 8
Awareness
Traffic / Leads
Conversion
Win-back
Advocacy
more customers
Price
ARPU
your customers
Lifetime
Churn
Loyalty
your customers
Revenue growth
The challenge: how can you acquire, monetize
and retain, all at once?
Acquire Monetise Retain
RetainMonetise
Acquire
The
recurring
revenue
trade-off
PackagingPrice
model
Price level
Low
commitment
High
commitment
More value
for less
More value
for more
Increase prices Hold prices
Simon-Kucher & Partners_Monetisation strategies for subscription businesses 9
Source: Simon-Kucher
Differentiation = The only way to beat the trade-off
triangle
Price
‘One-size-fits-all’ offer Differentiated offer
Customers not
reached yet!
Willingness-
to-pay not exploited!
Price
Super eco
Super premium
Eco
Standard
Premium
You can have
differentiated:
Packaging
Price models
Price levels
One-size fits all pricing & packaging for subscription businesses is a losing strategy
Good pricing & packaging almost always involve multiple offerings to unlock both revenue & volume
Volume Volume
Simon-Kucher & Partners_Monetisation strategies for subscription businesses 10
So concretely, what does differentiated pricing
and packaging look like?
Differentiated
packaging to drive
acquisition and
monetization
Differentiated price
models to drive
acquisition and
retention
Differentiated prices
levels to drive
monetization and
retention
1
2
3
RetainMonetise
Acquire
The
subscription
trade-off
triangle
PackagingPrice
model
Price level
Low
commitment
High
commitment
More value
for less
More value
for more
Increase prices Hold prices
12
3
Simon-Kucher & Partners_Monetisation strategies for subscription businesses 11
Source: Simon-Kucher & Partners
Packaging is a spectrum of flexibility, with the most
common permutations listed here
Degree of customer flexibility
All-you-
can-eat
Functional
Packages
Good/
Better/
Best
Platform +
Functional
Packages
Build-your-own
Least flexible,
but simple
Most flexible,
but complex
Base Platform
Simon-Kucher_Ellucian_Phase 1_Strategy Design Workshop 12
1
Source: Simon-Kucher & Partners
Packaging is a spectrum of flexibility, with the most
common permutations listed here
Degree of customer flexibility
All-you-
can-eat
Functional
Packages
Good/
Better/
Best
Platform +
Functional
Packages
Build-your-own
Least flexible,
but simple
Most flexible,
but complex
Simon-Kucher_Ellucian_Phase 1_Strategy Design Workshop 13
1
Ben
efi
ts
Simplicity
Drives
engagement
Relatively simple
Avoid cherry-
features
Forces tradeoffs on
price
Offerings can grow
customer needs
Combines clarity of
decision makers
hooks for cross-
purchasing
Maximizes choice
Self selection by
& WTP
Wh
en
it
wo
rks
Want to drive widespread engagement & on maximum simplicity
Separate decision Vendor strength
multiple functional
Leader in both depth of
Realistic to using products &
Separate decision Significant cross-
workflows decision
Customers have ranging needs and maximum flexibility
Customers can informed decisions on needs/WTP
Part 2: price model
Differentiated
packaging to drive
acquisition and
monetization
Differentiated price
models to drive
acquisition and
retention
Differentiated prices
levels to drive
monetization and
retention
1
2
3
RetainMonetise
Acquire
The
subscription
trade-off
triangle
Price level
Low
commitment
High
commitment
More value
for less
More value
for more
Increase prices Hold prices
3
2
PackagingPrice
model
12
Simon-Kucher & Partners_Monetisation strategies for subscription businesses 14
Source: Simon-Kucher
There are a range of structures that can be
applied set recurring fees
Fixed Variable
Price
Usage
Flat rate (for year)
Price
Time
Adaptive flat
rate (for successive years)
Price
Usage
Hockey Stick
(Package plus pay/use)
Price
Usage
Two
dimensional
Price
Usage
Pay as you
go
Price
Usage
Package plus
capped pay /
usePrice
Usage
Capped
PAYG
Price
Usage
Regressive
Common when on-
boarding required
Common with Big Data
applications
FinancialForce_Project Summary & Documentation.pptx 15
More common in B2CMost common in ELA
settings
Used in long-term
contracts Risk-sharing models
2
Source: SImon-Kucher
In the software world, deployment models add on
additional stepping-stone variable for recurring spend
Traditional
on-prem
maintenance
On-prem
vendor-
managed
Hosted on
public cloud
Hosted by
vendor
(multi-tenant)
Hosted by
vendor
(single
tenant)
“You have full
control over your
environment, we
are available for
support as
needed”
“You own
equipment, we
manage
software”
“We will
manage your
deployment on
AWS/Azure/Goo
gle Cloud”
“Certainty of
dealing with one
throat to choke
for reliability”
“We manage
everything,
including
custom
modifications”
Potential
permutations:
Tiers of support
availability/SLAs
Potential
permutations:
Remote or
Badged on-site
Part 3: price level
Differentiated
packaging to drive
acquisition and
monetization
Differentiated price
models to drive
acquisition and
retention
Differentiated prices
levels to drive
monetization and
retention
1
2
3
RetainMonetise
Acquire
The
subscription
trade-off
triangle
Price level
Low
commitment
High
commitment
More value
for less
More value
for more
Increase prices Hold prices
3
3
PackagingPrice
model
12
Simon-Kucher & Partners_Monetisation strategies for subscription businesses 17
Source: Brad Feld
If we assume the healthy SaaS “Rule of 40%”* is split evenly between profit & growth (20%/20%)…
Why “price increase” is an important topic
for subscription businesses
Achieved with
increasing
prices by…
Achieved with
increasing sales
volumes by…
20% profit increase:
3
Price increases on the existing customer base are a far more powerful profit driver than
acquisition
Simon-Kucher & Partners_Monetisation strategies for subscription businesses 18
Source: Source: http://www.socialmediatoday.com/content/80-twitter-accounts-inactive-core-users-more-committed, SaaS customer engagement benchmark study by Totango, statisticbrain.com, Digital media strategy eye
article “”Groupon looks to tap 11m inactive subscribers”., http://www.billboard.com/biz/articles/news/digital-and-mobile/1554924/business-matters-spotify-deezer-inactive-accounts-are
But you want to be careful not to prompt churn3
Let sleeping dogs lie
Some customers are more
at risk than others
Simon-Kucher & Partners_Monetisation strategies for subscription businesses 19
Price increase approach: From flat price increases
across the board to targeted price changes 3
Price increase: Target setting
External Client Communication
Target
increase
Arguments
Content Usage
growthSupport
Customer A +10%
Customer B +20%
Price increase rationale (long list)
6080
5% 5% 5% 5%
Customer's current priceUpsell driver 1Upsell driver 2Upsell driver 3…Calculated target price
Truly targeted price increases involve:
Identifying WHO should receive an increase based on willingness to pay / customer risk
Setting different levels of price increases for every customer / segment
Make use of various media channels and arguments for communication to target groups
Project Example
Simon-Kucher & Partners_Monetisation strategies for subscription businesses 20
Summary: moving towards more differentiated
pricing & packaging for subscription businesses
The
approach
Packaging
Transition from point
products to packaged
offerings
(e.g. good-better-best,
functional, role-based or
other packages)
Price model
Consider introducing more
“risk share models” along-
side flat fees
(e.g. usage based
component)
Price level
Upgrade from flat price
increases across the
board to targeted price
changes
1 2 3
Simon-Kucher & Partners_Monetisation strategies for subscription businesses 21
So is revenue growth for subscription businesses easy?
No!
RetainMonetise
Acquire
The
subscription
trade-off
triangle
PackagingPrice
model
Price level
Low
commitment
High
commitment
More value
for less
More value
for more
Increase prices Hold prices
Simon-Kucher & Partners_Monetisation strategies for subscription businesses 22