Josh Bloom Partner Simon-Kucher

Transcription

1 Josh Bloom Partner Simon-Kucher 1

2 Licensing Model Transitions Simon-Kucher and Partners 2016 Silicon Valley Office 100 View Street Mountain View, CA Cell: (650)

3 Simon-Kucher & Partners at a glance World leader in pricing World leader in giving advice to companies on how to price their products BusinessWeek Pricing strategy specialists The Wall Street Journal The world s leading pricing consultancy The Economist In pricing you offer something nobody else does Professor Peter Drucker Best consultancies in marketing and sales 1 Simon-Kucher & Partners 2 Boston Consulting Group 3 McKinsey & Company manager magazine Global presence >3,000 projects in the last 2 years 30 offices worldwide, >1,000 employees >$250m in revenue Toronto Boston New York San Francisco Amsterdam Madrid Mountain View Atlanta Bonn Milan Dubai Brussels Munich Cologne Paris Copenhagen Warsaw São Paulo Frankfurt Vienna Istanbul Zurich Santiago de Chile London Luxembourg Beijing Singapore Tokyo Sydney 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 Source: Simon-Kucher 3

4 Simon-Kucher Global Pricing Study of >2k companies 83% report increasing price pressure 58% are in price war 37% increase achievement - lowest number ever measured Source: Simon Kucher Global Pricing Study 2016; >2k companies across the world; 39% C-level executives 4

5 How do companies seek to achieve Pricing Power? Top 5 options to escape oppressive market conditions* Introducing new, innovative, or differentiated 26% 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 20% 19% 16% 12% Share of respondents* Global Pricing Study; >2k companies worldwide; 39% C-level executives Source: Simon-Kucher & Partners 5

6 Questions for the audience How many of you work in a company that has recently considered changing their price model on at least one product or service? Now have many have actually gone through with it? 6

7 Global Pricing Survey: 2/3 of the companies working on new price models Do you think about changing your price model because of pricing pressure? No never thought about it 22% 29% Yes vague initiative No thought about it but declined 12% 37% Yes actively planned 7

8 To drive recurring revenue, your goals are to: Acquire more customers Awareness Traffic / Leads Conversion Win-back Advocacy Monetise your customers ARPU Retain your customers Lifetime Churn Loyalty Revenue growth Simon-Kucher & Partners_Monetisation strategies for subscription businesses 8

9 The challenge: how can you acquire, monetize and retain, all at once? Acquire More value Low for less Monetise commitment Retain more customers your customers your customers Awareness Traffic / Leads Conversion Win-back Advocacy More value for more Packaging Acquire ARPU The recurring revenue trade-off model High commitment Lifetime Churn Loyalty level Monetise Increase prices Revenue growth Hold prices Retain Simon-Kucher & Partners_Monetisation strategies for subscription businesses 9

10 Differentiation = The only way to beat the trade-off triangle One-size-fits-all offer Volume Differentiated offer Volume Customers not reached yet! Willingnessto-pay not exploited! Super eco Eco Standard Premium Super premium You can have differentiated: Packaging models 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 Source: Simon-Kucher Simon-Kucher & Partners_Monetisation strategies for subscription businesses 10

11 So concretely, what does differentiated pricing and packaging look like? More value for more More value for less 1 Acquire Packaging The subscription trade-off triangle Low commitment 2 model High commitment 1 Differentiated packaging to drive acquisition and monetization 2 Differentiated price models to drive acquisition and retention 3 Differentiated prices levels to drive monetization and retention 3 Monetise level Retain Increase prices Hold prices Simon-Kucher & Partners_Monetisation strategies for subscription businesses 11

12 1 Packaging is a spectrum of flexibility, with the most common permutations listed here Least flexible, but simple Degree of customer flexibility Most flexible, but complex All-youcan-eat Functional Packages Good/ Better/ Best Platform + Functional Packages Build-your-own Base Platform Source: Simon-Kucher & Partners Simon-Kucher_Ellucian_Phase 1_Strategy Design Workshop 12

13 When it works Benefits 1 Packaging is a spectrum of flexibility, with the most common permutations listed here Least flexible, but simple Degree of customer flexibility Most flexible, but complex All-youcan-eat Functional Packages Good/ Better/ Best Platform + Functional Packages Build-your-own Simplicity Drives engagement Relatively simple Avoid cherryfeatures Forces tradeoffs on price Offerings can grow customer needs Combines clarity of decision makers hooks for crosspurchasing Maximizes choice Self selection by & WTP 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 crossworkflows decision Customers have ranging needs and maximum flexibility Customers can informed decisions on needs/wtp Source: Simon-Kucher & Partners Simon-Kucher_Ellucian_Phase 1_Strategy Design Workshop 13

14 2 Part 2: price model More value for more More value for less 1 Acquire Packaging The subscription trade-off triangle Low commitment 2 model High commitment 1 Differentiated packaging to drive acquisition and monetization 2 Differentiated price models to drive acquisition and retention 3 Differentiated prices levels to drive monetization and retention 3 Monetise level Retain Increase prices Hold prices Simon-Kucher & Partners_Monetisation strategies for subscription businesses 14

15 2 There are a range of structures that can be applied set recurring fees Most common in ELA settings Common when onboarding required More common in B2C Flat rate (for year) Hockey Stick (Package plus pay/use) Two dimensional Pay as you go Usage Usage Usage Usage Fixed Variable Adaptive flat rate (for successive years) Package plus capped pay / use Capped PAYG Regressive Time Usage Usage Usage Source: Simon-Kucher Used in long-term contracts Risk-sharing models Common with Big Data applications FinancialForce_Project Summary & Documentation.pptx 15

16 In the software world, deployment models add on additional stepping-stone variable for recurring spend Traditional on-prem maintenance On-prem vendormanaged 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: Potential permutations: Tiers of support availability/slas Remote or Badged on-site Source: SImon-Kucher

17 3 Part 3: price level More value for more More value for less 1 Acquire Packaging The subscription trade-off triangle Low commitment 2 model High commitment 1 Differentiated packaging to drive acquisition and monetization 2 Differentiated price models to drive acquisition and retention 3 Differentiated prices levels to drive monetization and retention 3 Monetise level Retain Increase prices Hold prices Simon-Kucher & Partners_Monetisation strategies for subscription businesses 17

18 3 Why price increase is an important topic for subscription businesses If we assume the healthy SaaS Rule of 40% * is split evenly between profit & growth (20%/20%) 20% profit increase: Achieved with increasing prices by Achieved with increasing sales volumes by increases on the existing customer base are a far more powerful profit driver than acquisition Source: Brad Feld Simon-Kucher & Partners_Monetisation strategies for subscription businesses 18

19 3 But you want to be careful not to prompt churn Let sleeping dogs lie Some customers are more at risk than others Source: Source: SaaS customer engagement benchmark study by Totango, statisticbrain.com, Digital media strategy eye article Groupon looks to tap 11m inactive subscribers., Simon-Kucher & Partners_Monetisation strategies for subscription businesses 19

20 3 increase approach: From flat price increases across the board to targeted price changes Project Example increase rationale (long list) increase: Target setting 60 5% 5% 5% 5% 80 Customer's Upsell current Upsell driver price Upsell driver 1 driver Calculated 2 3 target price External Client Communication Target increase Customer A +10% Customer B +20% Content Arguments Usage growth Support 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 Simon-Kucher & Partners_Monetisation strategies for subscription businesses 20

21 Summary: moving towards more differentiated pricing & packaging for subscription businesses Packaging model level The approach Transition from point products to packaged offerings (e.g. good-better-best, functional, role-based or other packages) Consider introducing more risk share models alongside flat fees (e.g. usage based component) Upgrade from flat price increases across the board to targeted price changes Simon-Kucher & Partners_Monetisation strategies for subscription businesses 21

22 So is revenue growth for subscription businesses easy? No! More value for less Acquire Low commitment More value for more Packaging The subscription trade-off triangle model High commitment level Monetise Retain Increase prices Hold prices Simon-Kucher & Partners_Monetisation strategies for subscription businesses 22

23 Thank you London office 1 Plough Place London EC4A 1DE, UK Tel