http://bit.ly/PricingStrategySlide This presentation is focused on your pricing strategy and how to drive massive revenue growth. Zuora and our partner Simon-Kucher do lot of events together – pricing is always one of the most popular topics, because it’s such an important strategic lever. Pricing is even more important for subscription businesses – We’ll discuss why. We’re fortunate to work with a lot different types of subscription businesses and we learn about their subscription journeys – this is the content that we want to share with you. http://bit.ly/PricingStrategySlide

1. Your Pricing Strategy:
How to win with subscription pricing models

2. Joe Andrews, Sr. Director Marketing
@andrewsjoe
Matt Johnson, Managing Partner
@PricingGeek

3. Agenda
1 The shift to recurring revenue
2
3
4
Pricing strategies to drive growth
How to achieve pricing power
Insights from global pricing study
5 Q&A
© All content copyright of Zuora and Simon-Kucher and Partners, 2014

4. WE NOW LIVE IN SUBSCRIPTION ECONOMY
6.8 BILLION
Potential subscribers on mobile, social, web
80% OF CUSTOMERS
are demanding new consumption models
- The Economist 2014

5. TODAY’S CUSTOMERS ARE IN CONTROL
They are
informed
They buy
their way
They are
connected
70%
of customers are
through the buying
cycle before they
contact you
6.8B
potential subscribers on
Mobile, Social, Web
80%
of customers demand
new consumption
models
The Economist
2014

6. THEY HAVE NEW EXPECTATIONS
immediate
fulfillment
on-going
value
personal real-time
memorable
services

7. Immediate fulfillment
Instant & continuous value
Personalized control
Multi-channel, any time, any device
Memorable customer moments
1
WINNERS ARE DELIVERING
THE SUBSCRIPTION EXPERIENCE
2
3
4
5

8. Delivering the Subscription Experience
requires a different approach:
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

9. THREE LEVERS TO DRIVE SUBSCRIPTION GROWTH
Acquire
New customers
Increase
Value of your customer
Reduce
Churn
9

10. Product world Subscription
world
vs.
10

11. THE MOST IMPORTANT TOOL YOU HAVE
IS PRICING AND PACKAGING
Infinite pricing options
It’s all about fast Time-To-Market
Ability to quickly iterate and evolve
your pricing strategy

12. INFINITE PRICING OPTIONS…
THE CHALLENGE – WHERE TO FOCUS AND START?
Company launch
Single product
Simple monthly pricing
International growth
Multiple currencies
Regional pricing
Product expansion
Add-on products
Product bundles
Pricing optimization
Pricing tiers
Usage + overages
A/B testing
Revenue enhancement
Product upgrades
Billing frequencies
Complexity
Business Maturity

13. www.simon-kucher.com
Pricing for subscription businesses
Where are we today and what next?
Matt Johnson
100 View St.
Mountain View, CA 94041
Tel. (650) 691-3315
Fax (650) 641-4317
e-mail:
matt.johnson@simon-kucher.com

14. Who we are: Simon-Kucher & Partners at a glance
Global presence since 1986
27 offices worldwide 720 associates
Revenue 2013: £126m
Amsterdam
Beijing
Bonn
Boston
Brussels
Cologne
Copenhagen
Dubai
Frankfurt
Istanbul
London
Luxembourg
Madrid
Milan
> 2,000 projects in last three years
Best consultancy in marketing and sales*
1 Simon-Kucher & Partners
2 Boston Consulting Group
3 McKinsey & Company
Munich
New York
Paris
San Francisco
Santiago de Chile
Sao Paulo
Singapore
Sydney
Tokyo
Toronto
Vienna
Warsaw
Zurich
Internationally recognised experts
"world leader in giving
advice to companies on
how to price their
products"
Source: German manager-magazin Aug 2007 & 2011 / Institute für Management und Beratung; Survey among 264 top-managers; Maximum 500 points
"…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

15. What we do: Extensive experience with clients in the
subscription economy
B2B SaaS Media & Telco
Transitioning to SaaS Consumer Internet
Source: Simon-Kucher & Partners
15

16. Global Pricing Survey:
A minority of companies achieve pricing power
Total
Pharma, biotech/medtech
Consumer goods
Financial services
Automotive
Transport/logistics
Low pricing power High pricing power*
6… 35%
“Pricing Power” assessment
* High pricing power is the ability of a company to fully/almost get the money it deserves for the value it delivers
Source: Simon-Kucher & Partners Global Pricing Study
53%
47%
30%
27%
19%
47%
53%
70%
73%
81%
Only 35% are
able to get the
prices they
deserve!
16

17. Global Pricing Survey:
Pricing power has strong impact on profits
Average EBITDA of last three years (index)
Source: Simon-Kucher & Partners Global Pricing Study 2012/2014
133
100
Companies with
high pricing power
All others
“Pricing power”
increases profits by
33%
17

18. 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

19. How do Telecom, Internet, Media and Entertainment
(TIME) rate on the “Warren Scale”?
Net price changes in the past year
66%
Source: Simon-Kucher Global Pricing Study 2014 (TIME n=80, All else n=1494)
37%
16%
45%
Average TIME
Price increase
Price decrease
TIME
companies
19

20. Why are TIME companies unable to raise prices?
Have you experienced higher
price pressure?
92%
89%
85%
80%
64%
60%
Maximum
Average Cause or symptom?
Minimum
Is your company currently
engaged in a price war?
71%
TIME
46%
TIME
20

21. The real reason is a culture and acceptance that
prices simply ‘go down in our industry’
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
18%
12%
11%
5%
0%
-4%
-5%
-5%
-6%
-14%
Reasons for price pressure (TIME compared to average)
21

22. What can be done?
Launch new products and change customer perceptions!
*Top 5 options to escape oppressive market conditions, Multiple responses possible
Source: Global Pricing Study 2014
35%
33%
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

23. Prerequisite: Think about monetization from day one
* Less than five years old
Source: Global Pricing Study 2014
Global Pricing Study 2014_Simon-Kucher & Partners
Share of new products* that meet profit targets
20%
40%
Pricing considered only at time of
launch
Pricing considered throughout
the development process
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 Ballmer
CEO Microsoft 2000 – 2014
Pricing power
23

24. Key success factor for the "Best“ companies:
C-level involvement/guidance is top priority in pricing
What is your top priority in pricing?
Multiple responses possible
Source: Global Pricing Study 2014
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
68%
34%
33%
25%
17%
39%
26%
29%
19%
17%
Best Rest
24

25. The way forward: Pricing success factors
Source: Simon-Kucher & Partners
 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 mindset 1
 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 pricing
3
25

26. Top 10 pricing programs among subscription businesses
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
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

27. Case Study: All customers don’t “think” alike!
$10 item $200 item
Fee Structure % Selecting
3.5%
+ $0.15 flat fee
$0.50
Flat $ fee
5%
Flat % fee
Indifferent
Respondents were presented with the following breakeven scenarios (all fee calculations come out to be the same):
Source: Simon-Kucher project experience; numbers and client industry anonymized
Fee Structure % Selecting
3.5% +
$3 flat fee
5%
Flat % fee
$10.00
Flat $ fee
Indifferent
For smaller transactions, consumers preferred simplicity / transparency ($0.50); 1.00); For
larger transactions, consumers preferred a the more most complex complex fee fee structure
structure
Project Example:
Internet PPU
27

28. Case Study: The right structure is critical!
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Source: SKP project 2012
Approach
Project Example:
SaaS
 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
Plus (55%) - $39
Advantage (7%)
$349
Plus (24%) - $39
Deluxe (32%) -
$79
Deluxe (48%) -
$99
(Price increase)
Elite (12%) - $149
Elite (21%) - $199
(Price increase)
0%
May August
% of new subscribers
New tier
# of new subs 1,524 1,313 -14%
Average MRR per
$66 $124 88%
new subscriber
MRR from new
subscribers
$100K $162K 62%
28
Simon-Kucher Capabilities Briefing 12

29. Case Study: Anchoring can change price perception!
Subscriptions: Pick the type of subscription you want to buy or renew.
Options & results: Group 1
Option
Price in
US-$
% of people
choosing
Source: Dan Ariely, Predictably Irrational, New York: Harper Collins 2008, p. 1-6
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
68%
32%
16%
0%
84%
29

30. 30
Discussion / Q&A
30