Post on 01-Jul-2015
description
Your Pricing Strategy: How to win with subscription pricing models
@andrewsjoe
Joe Andrews, Sr. Director MarketingMatt Johnson, Managing
Partner @PricingGeek
1 The shift to recurring revenue
2
3
4
Pricing strategies to drive growth
How to achieve pricing power
Insights from global pricing study
Agenda
5 Q&A
© All content copyright of Zuora and Simon-Kucher and Partners, 2014
are demanding new consumption models
6.8 BILLION
80% OF CUSTOMERS
Potential subscribers on mobile, social, web
- The Economist 2014
WE NOW LIVE IN SUBSCRIPTION ECONOMY
They areinformed
They buytheir way
They areconnected
of customers are through the buying cycle before they
contact you
70% potential subscribers
on Mobile, Social, Web
6.8Bof customers
demand new consumption
models
The Economist 2014
80%
TODAY’S CUSTOMERS ARE IN CONTROL
personal real-timeimmediatefulfillment
on-going value
memorable services
THEY HAVE NEW EXPECTATIONS
Immediate fulfillment
Instant & continuous value
Personalized control
Multi-channel, any time, any device
Memorable customer moments
1
WINNERS ARE DELIVERINGTHE SUBSCRIPTION EXPERIENCE
2
3
4
5
A different pricing and go-to-market strategy
An increased focus on loyalty and adoption
A new approach to revenue growth
A completely new way to measure success
Delivering the Subscription Experience requires a different approach:
Acquire
New customers
Increase
Value of your customer
Reduce
Churn
THREE LEVERS TO DRIVE SUBSCRIPTION GROWTH
9
Product world
Subscription world
vs.
10
Infinite pricing options
Ability to quickly iterate and evolveyour pricing strategy
It’s all about fast Time-To-Market
THE MOST IMPORTANT TOOL YOU HAVE IS PRICING AND PACKAGING
Company launchSingle productSimple monthly pricing
Revenue enhancementProduct upgradesBilling frequencies
Product expansionAdd-on productsProduct bundles
Pricing optimizationPricing tiersUsage + overagesA/B testing
International growthMultiple currenciesRegional pricing
Com
ple
xit
y
Business Maturity
INFINITE PRICING OPTIONS… THE CHALLENGE – WHERE TO FOCUS AND START?
www.simon-kucher.com
Where are we today and what next?
Pricing for subscription businesses
Matt Johnson
100 View St. Mountain View, CA 94041Tel. (650) 691-3315Fax (650) 641-4317
e-mail: matt.johnson@simon-kucher.com
Source: German manager-magazin Aug 2007 & 2011 / Institute für Management und Beratung; Survey among 264 top-managers; Maximum 500 points
Who we are: Simon-Kucher & Partners at a glance
Global presence since 1986
> 2,000 projects in last three years
Best consultancy in marketing and sales*
1 Simon-Kucher & Partners
2 Boston Consulting Group
3 McKinsey & Company
We were ranked #1 in last 2 surveys
27 offices worldwide 720 associates
Revenue 2013: £126m
AmsterdamBeijingBonnBostonBrusselsCologneCopenhagenDubaiFrankfurtIstanbulLondonLuxembourgMadridMilan
MunichNew York
ParisSan Francisco
Santiago de ChileSao PauloSingapore
SydneyTokyo
TorontoVienna
WarsawZurich
Internationally recognised experts
"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"
Pricing excellence
Growth and competitive strategies
Product portfolio (re-)design
Customer relationship and customer value management
Sales strategies and sales channel optimisation
Strategy> 400
Sales> 500
Marketing> 500
Pricing> 1,000
14
Source: Simon-Kucher & Partners
What we do: Extensive experience with clients in the subscription economy
B2B SaaS Media & Telco
Transitioning to SaaS Consumer Internet
15
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
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!
16
Global Pricing Survey:Pricing power has strong impact on profits
Source: Simon-Kucher & Partners Global Pricing Study 2012/2014
133
100
Average EBITDA of last three years (index)
Companies with high pricing power
All others
“Pricing power” increases profits by
33%
17
Pricing power: The single most important business lever
"The single most important decision in evaluating a business is pricing power.“
"If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you've got a terrible business."
"The extraordinary business does not require good management.“
Warren Buffett
Source: Warren Buffett in an interview with FCIC, May 2011
18
Source: Simon-Kucher Global Pricing Study 2014 (TIME n=80, All else n=1494)
How do Telecom, Internet, Media and Entertainment (TIME) rate on the “Warren Scale”?
Average TIME
66%
37%
16%
45%
Net price changes in the past year
Price increase
Price decrease
TIMEcompanies
19
Minimum
Maximum
Average Cause or symptom?
Why are TIME companies unable to raise prices?
Have you experienced higher price pressure?
Is your company currently engaged in a price war?
71%
89%
92%
85%
TIME
TIME #1 industry for intentionally starting price wars!
46%
64%
80%
60%
TIME
20
Lowering prices is a natural trend in our industry
Regulatory pressure (prices influenced by political play)
Low-price competition (e.g. new entrants or importers attack us in our market)
We compete on low prices
We offer a commodity product
Cost decreases that we need to pass on to our customers
Customers are becoming more professional in the procurement process
We needed to achieve our market share or volume growth targets
Customers are more informed about prices than ever
Customers have the negotiation power to ask for more discounts
The real reason is a culture and acceptance that prices simply ‘go down in our industry’
18%
12%
11%
5%
0%
-4%
-5%
-5%
-6%
-14%
Reasons for price pressure (TIME compared to average)
21
*Top 5 options to escape oppressive market conditions, Multiple responses possibleSource: Global Pricing Study 2014
What can be done? Launch new products and change customer perceptions!
33%
35%
47%
47%
77%
Share of respondents*
Introducing new, innovative, or
differentiated products
Changing the way customers think about
price and value
Reducing our variable or fixed costs
Changing mindset and confidence in our ability to
implement higher prices
Strengthening marketing functions to support value
communication
22
* Less than five years oldSource: Global Pricing Study 2014
Prerequisite: Think about monetization from day one
Global Pricing Study 2014_Simon-Kucher & Partners
20%
40%
Share of new products* that meet profit targets
+100%
This thing called ‘price’ is really, really important.
I still think that a lot of people under-think it… You have a lot of companies that start and
the only difference between the ones that succeed and fail is that one figured out how to make money, because they were
deep-in thinking through the revenue, price, and business
model. I think that’s under-attended to generally.
Steve BallmerCEO Microsoft 2000 – 2014
Pricing power
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Multiple responses possibleSource: Global Pricing Study 2014
Key success factor for the "Best“ companies:C-level involvement/guidance is top priority in pricing
Innovation, value, and price management is a C-level objective and a crucial success factor at the "Best" companies…
Its not so much about tools and methods but about a culture of monetization and an organization that reflects that
Leadership & strategy: Clear directions, guidelines and owner-ship from C-level executives in pricing
Organization: Clear pricing roles and responsibilities in middle management
Skills: Improved sales skills and awareness
Processes: Increased dedication to pricing
Tools: Superior tools and methods
Global Pricing Study 2014_Simon-Kucher & Partners
What is your top priority in pricing?
68%
34%
33%
25%
17%
39%
26%
29%
19%
17%
Rest Best
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Source: Simon-Kucher & Partners
The way forward: Pricing success factors
Pro-active attitude to monetization; do not accept conventional wisdom that prices can only go in one direction
Avoid price only competition and price wars
Monetization culture and
mindset1
Executives provide clear strategic guidance and make these objectives a top priority
Intense focus on customers and on value permeates corporate culture
Innovation, value and
price management as C-level issues
2
Innovation process fully integrates marketing and pricing throughout, from ideation right through to launch
‘Making money’ cannot be an afterthought
Continual focus on marketing
and pricing3
25
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
26
Source: Simon-Kucher project experience; numbers and client industry anonymized
Case Study: All customers don’t “think” alike!
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
27
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 $162K 62%
Simon-Kucher Capabilities Briefing 12
Case Study: The right structure is critical!Project
Example: SaaS
28
Case Study: Anchoring can change price perception!
Source: Dan Ariely, Predictably Irrational, New York: Harper Collins 2008, p. 1-6
Options & results: Group 1
Option Price in US-$
% 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%
29
30
Discussion / Q&A
30