Day 5 Afternoon - Dixon, Pricing and Delivery

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  • 1. Lead to Win Pricing and Delivery June 25, 2009 Fred Dixon, CEO Blindside Networks
  • 2. Fred’s background in sales
    • Co-founded three software companies
      • Databeacon Inc (sold to Cognos 2004)
      • OpenLava Inc
      • Blindside Networks Inc
    • My sales experience
      • Large deals (> $10k) with professional services (PS) component
      • OEM sales (largest was $250k)
    • I have
      • Raised 4.7M in venture financing
      • Hired a US/Cdn sales force (VP of Sales + 4 reports)
      • Sold primarily to private/public companies
    Slide
  • 3. Learning objectives
    • You will know about:
    • Price strategy and generic pricing approaches
    • Price attacks
    • And you will be able to:
    • Contribute to price decisions
    • Present, justify, and defend your pricing
    Slide
  • 4. In the beginning ...
    • In the early stages, your goal is to create satisfied customers that you can use as references
    • Price is a key component of a satisfied customer
      • Subscription based pricing
        • Usually tied to consumption over time
      • License based pricing
        • One time license + support + professional services
    • Let’s break down pricing into three phases
      • Before the sale : Create a pricing model that makes sense
      • During the sale : Justify the pricing to the customer
      • After the sale : Deliver on the value at the agreed price
    Slide
  • 5. Pricing: The Big Picture Slide
  • 6. Research your price
    • Factors that affect pricing strategy
      • Example
    • Three generic approaches
    • Price to capture fair share of value
    • Drill down into their costs
    • Fit with the customer’s pricing logic
    • Take advantage of environmental differentiators
    Slide
  • 7. Factors that affect pricing strategy Price strategy
    • BU’s P&L
    • Revenue growth
    • Impact of discounts
    • Cost structure
    • Competitors’ responses
    • Price wars
    • New entrants
    • New products
    • New price strategy
    Health of industry Stage in life cycle Organizational consensus Value of offer relative to competitors Slide
  • 8. Example
    • License
    • Support
    • Professional Services
    • Example: $10k base with 15 days of PS
      • Year 1
      • Year 2
      • Year 3
    • (Three Generic Approaches)
    • 20% of license/year
    • $1500/day
    • $10k + $15k + $2k = $27k
    • $2k
    • $2k
    Slide
  • 9. Three generic price approaches Slide Emerging Growth Mature Decline Extract
    • Premium price
    • Differentiated offer
    • Creates opportunities for rivals
    Yes Yes Yes Yes Neutral
    • Price close to competition
    • Prevents price wars
    • Compete other than price
    Yes Yes Yes Yes Penetrate
    • Low price is primary driver
    • Price wars
    • Low customer loyalty
    • Leads to confusion
    No Yes No No
  • 10. Price to capture fair share of value
    • Identify targeted value segment
    • Define value levels
    • Determine offer (product, services, delivery etc.) that delivers value for each level
    • Demonstrate value each offer creates
    • Price to reflect value created
    Slide 1. Value segment 2. Value levels 3. Segment offers 4. Financial value demonstrated 5. Price Level 1 Offer 1 Value 1 C 1 x Value 1 Level 2 Offer 2 Vaue 2 C 1 x Value 1 … … … … Level n Offer n Value n C n x Value n
  • 11.
    • How to determine what customers are willing to pay?
    Slide
  • 12. Drill down into their costs Solution to save 60% of SW budget Financial value = Save $252 M per year Integrate (i) drilled down customer answer and (ii) internal view Slide Supplier’s view of proposed solution
    • Advanced HW
    • IP technology
    • System integration
    Supplier Question Customer Answer What do you need? Reliable XYZ Why? Save SW Budget How much is SW budget? 70% of project cost How large is average project costs? $3 M/project How many projects/year 200 projects/year
  • 13. Fit with customer’s price logic
    • What each customer is willing to pay
    • Relative to competitors
    • Combination pricing
    • Foot in door pricing
    • Transparent pricing
    • Cost plus
    Focus on logic of approaches your customers and you use to set prices, not on absolute price numbers Show how your price logic supports customer’s price logic
    • Other approaches (not covered)
      • Dynamic pricing
      • Variable pricing
      • Auction
      • Group
      • Based on an index
      • Regulated pricing
    Slide
  • 14. Take advantage of environment differentiators
    • Ability to price discriminate increase when:
    • Markets are very different from each other
    • Customers can’t resell products bought in one market into another market
    • Competitors can’t undersell where prices are higher
    • Cost of overseeing discriminatory pricing is low
    • Price discriminate based on:
    • Image
    • Customer segment
    • Location
    • Timing
    • Channel
    • Packaging
    Slide
  • 15. During the sale Slide
  • 16. Pricing during sales
    • Explore your customer’s pain
    • Justify your price in terms of their pain
    • Incorporate price sensitivity
    • Present you price early!
      • Low price sensitivity: take advantage
      • High price sensitivity: differentiate
    • Prevent and be prepared to respond to price attacks
    • Defend your price
    Slide
  • 17. Explore your prospect’s pain Slide Manager Director VP $ Impact $ Impact $ Impact $$$ Total impact of problem =
  • 18. Justify your price in terms of their pain
    • Focus on the current costs incurred by your customer (as opposed to your features)
      • You want to show that the status quo (no sale) is not an option
    • If possible, describe your solution in terms of reducing their costs
      • Decisions are easier when it’s cost reduction rather than taking a risk for a future benefit
    • When should you talk about price?
    Slide
  • 19. Present your price early! Slide
  • 20. Low price sensitivity: take advantage
    • Customers’ price sensitivity decreases when:
    • Product is perceived to be better
    • Product fits well with assets bought previously
    • Conditioned to buy from the supplier
    • Costs and time required to search for and compare with alternatives are high
    • Cost is small compared to total cost
    • Cost is small relative to income
    • Cost is paid by others
    Slide
  • 21. High price sensitivity: differentiate
    • You have many opportunities to differentiate
      • Educate the customer based on your experience working with other companies
      • Reduce their effort to implement your solution by improving your product and project management skills
      • Anticipate and solve problems (reduce risk) for the customer during planning and delivery
      • Enable customers to map their position or benchmark their performance relative to others
      • Makes sense of information and predict in ways that customers cannot do on their own
    • Take every opportunity to strengthen the relationship
      • Your motto: “We will not permit you to fail”
    Slide
  • 22. Price attack (you or your competitors)
    • To prevent price attacks:
    • Make money for customers, suppliers and resellers
    • Avoid encouraging rivals’ price attacks
    • Alert customers to risks of poor price quality
    • Make public your intentions and capabilities to deal with various types of price attacks:
      • Low function, low convenience offer
      • Same function with large distributor as partner
      • Unbundled into high-low functionality and high-low convenience that can be ordered online or phone
      • New functionality
      • Discriminatory, high prices in certain places and low in others
    • To respond to price attacks:
    • Increase benefits of existing offer, maintain price
    • Increase price and improve quality
    • Ignore those unlikely to gain large market share
    • If discriminatory, inform customers in both segments
    • Strengthen value chain, enforce laws and patents
    • Offer volume discounts with bundled prices
    • Reduce price
    • Retreat from segments and strengthen offer in others
    Slide
  • 23. Defend your price
    • Have three “stands” ready
      • They are going to squeeze you until you stop dripping (this is a good thing).
    • After three stands, if they still ask for a deal, then say
    • “ If we do _____ would you be willing to do ______?”
      • For example: they agree to be a reference customer
    • Do not reduce your daily rate!
      • Instead: provide some free days of professional services
    Slide (*) Reprinted from http://www.flickr.com/photos/tico24/57517238/ under Creative Commons Attribution License. *
  • 24. Summary
    • Always rationalize your price from the customer’s perspective
      • Determine who is impacted by the current problem you are trying to solve
      • Drill down into the cost of the status quo
    • Present your price early
      • Add value (from the customer’s point of view) to differentiate and support your price
    • Be ready justify and defend your price from
      • Price attacks, or
      • Being squeezed by your customer
    Slide
  • 25. Pricing exercise
    • Let’s try applying the pricing strategy to your opportunity
    • For each opportunity
      • Explain your pricing logic
      • Justify your pricing
      • Defend your pricing
    Slide
  • 26. After the sale Slide
  • 27. After the sale
    • Now it’s time to deliver on the value you promised.
    Slide
  • 28. Learning objectives
    • You will know about:
    • The importance of project management
    • Breaking down large projects into two main phases
    • And you will be able to:
    • How to manage customer expectations for delivery
    • Keep a project on track
    Slide
  • 29. Ensuring successful delivery
    • Observations:
      • A successful reference is created during the implementation, not the sale
      • Most companies don’t have good project management skills
      • The more you are involved in implementation, the higher the chance this will be a success
    • During delivery you can add (significant) value to justify your price now and in the future
    • But wait, I’m not a project manager …
    Slide
  • 30. Have an implementation process
    • There are lots of processes
      • Waterfall (good for first project with a new customer)
      • Agile development (need a lot of trust)
    • Goal: Deliver to customer a high-quality solution on time and within budget .
    • Your process should
      • Clear definition of roles and responsibilities
      • Clear phases of delivery with accurate milestones
    • Example: Microsoft Solutions Framework (MSF)
    Slide
  • 31. Roles and responsibilities
    • Program Manager
      • Delivery of solution within project constraints
    • Product Management
      • Ensure solution matches customer needs
    • User Experience
      • Enhanced user experience
    • Development
      • Develop to product specifications
    • Test
      • Release after addressing all issues
    • Release Management
      • Smooth deployment and ongoing management
    Slide
      • You Lead
      • They Lead
      • They Lead
      • Shared
      • Shared
      • Shared
  • 32. Two phases
    • Split the implementation process into two phases:
      • Phase I: Planning and design: determine what needs to be done by whom
        • 25-40% of overall project effort
      • Phase II: Implementation
    • If you get pushback from the customer
      • Say: “Based on our experience, this process is the most cost-effective way to implement this solution.”
      • Analogy of building a house: No builder would is going to start building a house without the architectural plans
    Slide
  • 33. Phase I: Determine what needs to be done by who Slide
  • 34. Vision Scope
    • Vision/Scope document (short as possible)
      • Identify the long-term vision
      • Define expectations for first implementation (scope)
        • Capture how the customer measure success
      • Identify people for each role
      • Capture high-level requirements (attach as a spreadsheet)
        • Business
        • User
        • Functional
        • Security
    • Risk management
      • Identify risks and plan for management of them (few companies do this themselves)
    Slide
  • 35. Create a project plan
    • Take the requirements spreadsheet
      • Add a new column (days of effort)
      • Estimate the days for each requirement
    • This part is always a challenge for a company
      • But it’s a very important activity as your company must become good at making time estimates ASAP
    • Before you present the milestones to your customer
      • Build-in time for internal slippage
        • If you are a day early on each milestone: You’re a hero
        • If you a day late on each milestone: You are unreliable
    Slide
  • 36. Signoff
    • Before you start phase II
      • The customer can add/remove features and modify the price/timeline
      • Say: “You control the costs by adding/removing features from the spreadsheet”
    • Be ready to defend your time estimates
    • Get signoff
      • E-mail is fine
    Slide
  • 37. Phase II: Implement the solution
    • Phase II is really “follow the project plan”
      • Implementation
      • Testing
      • Delivery
    • After you start Phase II
      • Expect the customer to request changes
      • Say: “That’s a good idea, do you want us to add that to this release?”
      • If so,
        • Always discuss costs directly (use e-mail for summaries)
        • Spec and bill as a change requests (more revenue!!)
    Slide
  • 38. Account management
    • Account management
      • Your project management skills ensure development remains on track and risks are properly managed
      • Hold weekly meetings and updates with the customer
    • Invoicing
      • Invoice against milestones
      • Never invoice for something that you don’t have approval for
    • Your motto: “We will not permit you to fail”
    Slide
  • 39. Delivery summary
    • Capturing the requirements, user scenarios, and specs will ensure you build what the want
    • Having your own implementation process enables you to
      • Lower the risk for your customer
      • Manage the deployment
      • Protect against feature creep
      • Legitimately charge for changes
      • Setup for deployment of your next release
    • Successful delivery = successful reference
    Slide
  • 40. References
    • Bosworth, M.T. (1994). Solution Selling: Creating Buyers in Difficult Selling Markets , McGraw-Hill. ISBN: 978-0786303151
    • Microsoft Solutions Framework 3.1 (microsoft.com)
    Slide