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Pricing for innovation 14 feb2018 venturelabs

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Businesses are finding it challenging to price innovations. This presentation highlights a value-based approach:
- Pricing is central to how you communicate your value and position your offer
- Value has economic and emotional aspects – both matter
- Market segmentation is the foundation of your pricing strategy
- Connect the value metric to the pricing metric
➔ Pricing power is important to investors

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Pricing for innovation 14 feb2018 venturelabs

  1. 1. Karen Chiang karen@ibbaka.com | +1 778-628-4085 Pricing for Innovation SFU VentureLabs / Vancouver/ February 14, 2018
  2. 2. About me http://hq.teamfit.co/how-our-skills-support-and-shape-our-career/1 I 2018 © Ibbaka Performance Consulting Inc.
  3. 3. • Whose dealing in B2B, B2C, B2G (Business to Government) markets? • Anyone in M2M (Machine to Machine)? • What role? • How many of you are responsible for pricing? • Early stage ventures? A bit about us 2 I 2018 © Ibbaka Performance Consulting Inc.
  4. 4. • Aspects of your company may be incomplete • Management team may be lacking key individuals • Product is still in development, or • Product is not yet on the market in a commercialised form, (typically in ‘beta’) • If commercially available, the product is generating revenues but on a limited basis • May have filed for patents for proprietary technologies • Funding is transitioning from founders, friends & family • Looking to attract funds from accelerators, angels and maybe VCs Early stage 3 I 2018 © Ibbaka Performance Consulting Inc.
  5. 5. • Pricing is central to how you communicate your value and position your offer • Value has economic and emotional aspects – both matter • Market segmentation is the foundation of your pricing strategy • Connect the value metric to the pricing metric ➔ Pricing power is important to investors Key takeaways 4 I 2018 © Ibbaka Performance Consulting Inc.
  6. 6. • Pricing is central to how you communicate your value and position your offer * • Your pricing is part of your innovation • Pricing changes across the product lifecycle • Pricing is based on the value you provide to your customers • Value has economic and emotional aspects – both matter * • Market segmentation is the foundation of your pricing strategy • Your data model should support your value and pricing models • Connect the value metric to the pricing metric * • Pricing power is important to investors * Agenda 5 I 2018 © Ibbaka Performance Consulting Inc.
  7. 7. Why Pricing Matters Pricing is where it all comes together How you create value Who you sell to How you communicate value How you capture value 6 I 2018 © Ibbaka Performance Consulting Inc.
  8. 8. Pricing as an innovator Example: Aerospace industry’s innovation in pricing concept: Power by the Hour (PBH) -- Performance-based Logistics (PBL) • Shared risk and incentives between suppliers and customers Reference source: http://knowledge.wharton.upenn.edu/article/power-by-the-hour-can-paying-only-for-performance-redefine-how-products-are-sold-and-serviced/ 7 I 2018 © Ibbaka Performance Consulting Inc.
  9. 9. Pricing in the Technology Adoption Cycle Will Not Pay Pay a Premium Innovators 8 I 2018 © Ibbaka Performance Consulting Inc.
  10. 10. Pricing in the Technology Adoption Cycle Vertical Value Drivers Horizontal Value Drivers Precise Segmentation 9 I 2018 © Ibbaka Performance Consulting Inc.
  11. 11. Understanding value is the foundation for • Market Segmentation • Value-Based Pricing • Marketing Strategy • Value-Based Sales Core concepts: Value Without value There is nothing to price 10 I 2018 © Ibbaka Performance Consulting Inc.
  12. 12. • Emotional – necessary to give people the motivation to buy, without an emotional connection the sales will not occur, emotional value increases pricing power • Economic – justifies the price, sets the parameters within which one can price (business buyers do not want to pay more than the business value they will receive • Always relative to an alternative Core concepts: Value is Emotional and Economic 11 I 2018 © Ibbaka Performance Consulting Inc.
  13. 13. Emotional value Maslow’s Hierarchy PricingPower 12 I 2018 © Ibbaka Performance Consulting Inc.
  14. 14. • Grow market • Improve pipeline conversions and velocity Increased Revenues • Improve efficiency • Reduce rework Reduced Operating Expenses • Defer Investment • Extend asset life Reduced Capital Expenses • Accelerate cash collection • Reduce inventory Reduced Operating Capital • Reduce or avoid liability • Resilience Risk Reduction • Flexibility • Current and future choices (avoid lock in) Value of an Option Positive economic value drivers 13 I 2018 © Ibbaka Performance Consulting Inc.
  15. 15. • The costs of using your solution that do not apply to the next best competitive alternative • Switching costs • Training Your Unique Costs • The things that the alternative does better than your solution, the alternatives positive value drivers Your Shortcomings Negative economic value drivers 14 I 2018 © Ibbaka Performance Consulting Inc.
  16. 16. Value is Differentiated Customer Needs Your Offer Alternative Unmet Needs Commodity Your Differentiation Irrelevant Irrelevant Competitor Differentiation 15 I 2018 © Ibbaka Performance Consulting Inc.
  17. 17. • The simplest and most common form of segmentation is demographic (or firmographic) • Do firms of a similar size, or in a similar industry, or in the same geography all buy in the same way? Demographic segmentation 16 I 2018 © Ibbaka Performance Consulting Inc.
  18. 18. • Lives in a castle • Rich • 69 Year Old • Cares about family Demographic Often Fails 17 I 2018 © Ibbaka Performance Consulting Inc. Ozzie Osborne Prince Charles Same demographics, different value drivers and buying behaviors
  19. 19. • Segmentation is the foundation of marketing • The goal is to connect similar customers into groups to simplify • Marketing • Sales • Support • Pricing Core concepts: Why Segmentation ➔ Companies in the same segment should behave in similar ways and respond to similar value propositions 18 I 2018 © Ibbaka Performance Consulting Inc.
  20. 20. A good segmentation brings together companies that 1. Buy in the same way 2. Get value in the same way 3. Will act as reference for each other (especially important in launching a new offer) Core concepts: A Good Segmentation 19 I 2018 © Ibbaka Performance Consulting Inc.
  21. 21. Core Concepts: Pricing Methods • Price at a mark-up on your costs • Use when customer has controlCost Plus • Price at a premium or discount to a market leader • Use for fungible commodities Market Based • Price based on your differentiation value, pricing power & pricing strategy • Use for differentiated offers Value Based 20 I 2018 © Ibbaka Performance Consulting Inc.
  22. 22. Penetrate Price low, grow market share, win first mover advantage Pricing strategies Market following Price relative to an alternative Premium Price to communicate and capture differentiated value 21 I 2018 © Ibbaka Performance Consulting Inc.
  23. 23. Your pricing strategy needs to support your brand Market Positioning Brand Attributes Value Drivers Target Customers Pricing Strategy Pricing 22 I 2018 © Ibbaka Performance Consulting Inc.
  24. 24. • Pricing innovation will depend on data • You should own the data model • Your data model should be able to collect and connect data on value, usage, pricing Your data model is your DNA 23 I 2018 © Ibbaka Performance Consulting Inc.
  25. 25. Value metric = The unit of consumption by which your customer gets value Value metrics 24 I 2018 © Ibbaka Performance Consulting Inc.
  26. 26. Pricing Metric = The unit of consumption by which you charge Pricing metric 25 I 2018 © Ibbaka Performance Consulting Inc.
  27. 27. Value Metric ≈ Pricing Metric Does your pricing metric track your value metric? Connecting the Value and Pricing metric 26 I 2018 © Ibbaka Performance Consulting Inc.
  28. 28. Tracks Value Discriminates Segments Makes it Easy to Buy Enforceable Simple Choosing pricing metrics Pricing Metric27 I 2018 © Ibbaka Performance Consulting Inc.
  29. 29. “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.” Warren Buffet Pricing power 28 I 2018 © Ibbaka Performance Consulting Inc.
  30. 30. • Pricing is where all of your critical marketing decisions come together • Investors will assess your pricing strategy and pricing performance Pricing matters to investors 29 I 2018 © Ibbaka Performance Consulting Inc.
  31. 31. • Market Segmentation demonstrates your understanding your market opportunity… • Patterns of needs, attitudes, behaviors • To identify customers who value your differentiation and the value they will receive • Underpins calculation of market size • Customer Targeting shows you’ve identified your most attractive segment • Prioritizes your marketing investment (financial and effort) • Understand your customer’s buying process Pricing matters to investors 30 I 2018 © Ibbaka Performance Consulting Inc.
  32. 32. • Unique and Differentiated Value Proposition • Determines your ability to realize your potential earnings • Is always relative to the next best competitive alternative. Investors want to know that you have done your competitive analysis • Market Sizing • Provides an indication of potential earnings • Does your Total Addressable Market (TAM), Serviceable Addressable Market (SAM), Serviceable Obtainable Market (SOM) justify your valuation Pricing matters to investors 31 I 2018 © Ibbaka Performance Consulting Inc.
  33. 33. • Customer Traction “quantitative evidence of market demand" • Validation that value is being created • Price Optimization • Pricing is the lever to win higher profits, revenue or market share • Connecting to your buyers emotional and economic needs • The correct pricing metrics helps you • to monitor price acceptance • guide behavior across pricing tiers, and • be better prepared for competitive positioning Pricing matters to investors 32 I 2018 © Ibbaka Performance Consulting Inc.
  34. 34. • Create and capture value for customers and your investors–all stakeholder • Pricing is where your marketing strategy gets real • You and your customer need to agree on price to win a sale Create value ➔ Price to create and capture value for all 33 I 2018 © Ibbaka Performance Consulting Inc.
  35. 35. 1. Figure out if you have pricing power. • Can you raise prices? • What can you do to increase your ability to raise prices? 2. Answer ‘Which of our customers gets the most value from our offer?’ 3. Checkout www.Ibbaka.com/self-assessment Three things to do tomorrow Note: In Beta, only available on Chrome Desktop. We look forward to your feedback. 34 I 2018 © Ibbaka Performance Consulting Inc.
  36. 36. www.Ibbaka.com/self-assessment ➔ Note: In Beta, only available on Chrome Desktop. We look forward to your feedback. 35 I 2018 © Ibbaka Performance Consulting Inc.
  37. 37. Contact Us Pricing consultancy and technology company built by experienced entrepreneurs We understand innovation because we live it Our passion is improving product launch and in market success through better strategic pricing and execution Understand the larger picture of segmentation, targeting, value modeling, value propositions and pricing architecture Ibbaka on Twitter Ibbaka on LinkedIn Website Steven Forth Managing Partner steven@ibbaka.com Karen Chiang Managing Partner karen@ibbaka.com 1 415 799 8326 Rashaqa Rahman Consultant rashaqa@ibbaka.com 37

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