Effective Product Pricing

Transcription

1 Effective Product Pricing The Key to Product Line Success MarketShare, Inc. 35 Main Street // Suite 8 Wayland, MA Tel: (508)

2 Agenda Introduction Price Strategically New Product Pricing Ongoing Pricing SaaS Pricing Wrap-Up 1

3 Introduction Presenter / MarketShare Principal of MarketShare, Inc. 20+ years consultant to software industry Coined term floating license in 1987 MarketShare - Unique Focus Pricing computer software since 1987 Sponsor of Practice areas Value-Driven Pricing Value-Focused Selling Discount Containment Deliverables More value from products & services Increased Sales effectiveness Improved financial performance 2

4 Market Forces 3 Competitor Responses Customer Demands Investor Demands Introduction Pressure to Change Open Source SaaS Business Model Technology Ad-Based Software

5 Introduction Where Pressure Is Felt Product Technology Business Model Features Product Management Business Model Sales Marketing 4

6 Introduction Pricing Can Relieve Pressure Use pricing strategically Beyond price levels Improve product pricing process Project timeline as guide Delegate ongoing pricing decisions Focus responsibilities Apply principles to SaaS delivered software Value-based pricing alternatives 5

7 Agenda Introduction Pricing Strategically New Product Pricing Ongoing Pricing SaaS Pricing Wrap-Up 6

8 Pricing Strategically Purpose of Pricing Support company strategy Position in market / industry Influence customer behavior Grease sales skids Reinforce channel strategy Address competition Fuel financial engine 7

9 Pricing Strategically Pricing More Than A Number Product Access Customer Type Price Level Services List Price Price Structure Configuration Technology Quality Payment Timing Rights to Use Purchase Scope 8

10 Pricing Strategically Many Elements Influence Pricing 9

11 Pricing Strategically Pricing Process Is Broken Prices developed too close to GA Price in haste, repent at leisure Pricing is orphan / unwanted child Price in leisure, repent when shipped Many moving parts What to do? When? Pricing driven by anecdote not data Not scientific PMs not well prepared to do pricing Pricing is small part of big job Limited organizational discipline Price setting Price realization 10

12 Agenda Introduction Pricing Strategically New Product Pricing Ongoing Pricing SaaS Pricing Wrap-Up 11

13 New Product Pricing Pricing and Product Decisions Start Develop Initial Release General Availability Successive Pricing Refinement 12

14 New Product Pricing Pricing from the Start Start Develop IR GA How product creates economic difference for customer Nature of value, order of magnitude Business case driven by transaction value (net) Transaction driven by mix of product chunks Transaction volume Customer segment(s)? Note: Your costs / ROI don t t count (to customer) 13

15 New Product Pricing Develop Pricing in Stages Start Develop IR GA Configure product What it is (main, options, modules) Choose what to control / measure (and charge for) Charge for what you control / measure Determine metric Determine offering structure Chunks, bundles, upgrade paths Drive pricing structure Starting price levels (e.g. Qty 1) 14

16 New Product Pricing Introduce Pricing to Sales Start Develop FST IR GA Economic value to customer Base + differential value Quantify value of uniqueness Volume-driven (scheduled) discount schedule Rationale Roll-off, off, maximum Set deal expectations Value, mix of product chunks 15

17 New Product Pricing Introduce and Monitor Pricing Start Develop IR FCS GA Initial discounts One time, promotional Segment focused and objectives Price realization Watch scheduled vs. negotiated discounts Market / customer feedback 16

18 Agenda Introduction Pricing Strategically New Product Pricing Ongoing Pricing SaaS Pricing Wrap-Up 17

19 Ongoing Pricing Pricing Tasks Price Setting Services and product Price metrics, levels Scheduled discounts Price Administration Price list / structure Structural integrity Price monitoring Price Realization Discount approvals Negotiated discounts 18

20 Ongoing Pricing Pricing Task Ownership Price Setting Services and product Price metrics, levels Scheduled discounts Price Administration Price list / structure Structural integrity Price monitoring Price Realization Discount approvals Negotiated discounts Product Marketing Marketing & Finance Field Sales 19

21 Ongoing Pricing Pricing Committee Multi-disciplinary Experienced Institutional memory Promote uniformity Ensure process adherence Approve price Mostly pricing process Bring out rationale, logic Convert Roadblock to Resource 20

22 Ongoing Pricing Ongoing Price Administration Price list / structure Organization and presentation Publishing and updating Price monitoring Closing the loop Price setting vs. price realization Information for price setting Structural integrity Maintaining the pricing vision Marketing and Finance Share Responsibility 21

23 Ongoing Pricing Know Where Discounts Go 70% Discounts by Segment Discount 60% 50% 40% 30% 20% 10% 0% Segment 1 Segment 2 Segment 3 Segment 4 Segment 5 Discount 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% In-Segment Discounts 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Transaction Share Revenue 22

24 Agenda Introduction Pricing Strategically New Product Pricing Ongoing Pricing SaaS Pricing Wrap-Up 23

25 SaaS Pricing Attractive Cashflow Traditional Pricing Model Annual Fee (% Perpetual License) 140% 120% 100% 80% 60% 40% 20% 0% Contract Year M & S License / RTU Set Up SaaS Pricing Model Annual Fee (% Perpetual RTU ) 140% 120% 100% 80% 60% 40% 20% 0% Contract Year Hosting M & S License / RTU Set Up 24

26 SaaS Pricing Key Considerations Support business model Investment Cashflow Revenue ramp Existing vs. start-up companies Different considerations Revenue ramp Predictability Amount, timing, growth Cost to serve Start-up Ongoing Incremental 25

27 SaaS Pricing Start With Customers Different type of customers Different segments Manageable value offerings Customer expectations Perceived risk Core economic value Value and risk elements Application stickiness Implanted applications Time sensitive Inside information Convenient Good enough Competition 26

28 SaaS Pricing Competitive Sanity Test Perpetual Equivalent of SaaS Fee $35.0 $30.0 $25.0 SaaS Fee (10 $50/mo. inc. hosting) Cume Payments ($K) $20.0 $15.0 Perpetual Equivalent (no hosting) M&S Fee (@ 15% Perpetual) Breakeven (3 years) $10.0 $5.0 $ # Quarters 27

29 SaaS Pricing Price Levels Pricing basics must be solid Pricing, packaging, discounting Value support for selling Start with a few assumptions Basic choices, timing, renewals Price relative to perpetual Finance and risk premiums Adjustments Upgrade / update frequency Competitive position Switching costs 28

30 Net Sub Rate Switching Costs Competitive Parity SaaS Pricing SaaS Value Steps Percent of Perpetual License Fee M&S Annualized License Risk + Fin Premiums Base Sub Rate Upgrade Frequency

31 Agenda Introduction Pricing Strategically New Product Pricing Ongoing Pricing SaaS Pricing Wrap-Up 30

32 Wrap Up Right Pricing Sequence Start Develop Initial Release General Availability Configuration Metrics Structure Levels Discounts Successive Pricing Refinement 31

33 Wrap Up Focus on Process Improve inputs to pricing process Competition Prices realized Summarize and capture logic Pricing proposals Policy decisions Make pricing and packaging policies uniform Apply across products in a product line Apply across all product if possible Make deviations a business decision 32

34 Wrap Up Assign Responsibilities Price Setting Services and product Price metrics, levels Scheduled discounts Price Administration Price list / structure Structural integrity Price monitoring Price Realization Discount approvals Negotiated discounts Product Marketing Marketing & Finance Field Sales 33

35 Wrap Up SaaS Pricing Customer value is driver Competition is modifier Separate out value elements Support business model Lifetime customer value Growth, penetration Apply good pricing practice Value step approach Perpetual equivalence SaaS not for everyone 34

36 Thanks! Contact Information: Jim Geisman