Product managers have the critical role to play in pricing early stage innovation. This presentation for Product Management BC introduces some basic pricing concepts for product managers.

1. November 22, 2017
Steven Forth
steven@ibbaka.com | +1 604 763 7397
Making Pricing a Strategic Priority
in 2018

2. • Hooked on early-stage innovation
(Founder of Thoughtshare, Agreement Express,
LeveragePoint, TeamFit)
• Got into pricing while at Monitor-Deloitte
and working with Tom Nagle
(Author of The Strategy and Tactics of Pricing)
• Advise companies on go-to-market
strategy with a focus on pricing
(Everything from Fortune 500 to Pre Revenue Startups)
• Blend Design Thinking & Pricing Strategy
because pricing requires design
A bit about me
Steven Forth
Managing Partner - Ibbaka
steven@ibbaka.com
+1 604 763 7397
@StevenForth
TeamFit Skill Profile

3. • Are you in B2B, B2C, B2G?
Anyone in M2M? (Machine to Machine)
• How many of you are in product
management roles?
Sales roles? Marketing roles? Financial
roles?
• How many of you are responsible for
pricing?
A bit about us (questions for the audience)

4. • Pricing is based on the value you provide to your customer
• Value has economic and emotional aspects – both matter
• Market segmentation is the foundation of your pricing strategy
• Pricing is a place to innovate
• Connect the value metric to the pricing metric
Key takeaways

5. Why Pricing?
Pricing is where it all comes together
How you
create value
Who you
sell to
How you
communicate
value
How you
capture value

6. The innovation cycle
Create
Communicate
CaptureDeliver
Understand
Pricing
VALUE

7. • What are you responsible for?
• Who are you accountable to?
• What value do you bring to
• Your organization?
• Your customers?
Why Product Managers?

8. What is your product development process?
Product Cost Price Customer? Value??
Customer Value Price Cost Product
Common Process
Value-Based Process

9. • Development costs
• Sunk costs, once they are spent they should NOT be considered in
segmentation, targeting or pricing
• Customer Acquisitions Costs (CAC)
• Cost of Goods Sold (minimal in SaaS, important in the growing IoT market)
• Cost to Serve (cost of customer success)
A quick aside on costs

10. Pricing in the Technology Adoption Cycle
Will Not
Pay
Pay a
Premium
Innovators

11. Pricing in the Technology Adoption Cycle
Vertical Value
Drivers
Horizontal
Value
Drivers
Precise
Segmentation

12. Pricing Methods
• Use when customer has controlCost Plus
• Use for fungible commoditiesMarket Based
• Use for differentiated offersValue Based

13. Emotional
Economic
Always relative to an alternative
What is value?

14. What is differentiation?
Customer Needs
Your Offer Alternative
Unmet
Needs
Commodity
Your
Differentiation
Irrelevant
Competitor
Differentiation
Irrelevant

15. Emotional value
Maslow’s
Hierarchy
PricingPower

16. Economic value
Price of
Alternative
Your Positive Value
Drivers
Your Negative
Value Drivers

17. Economic value
Price of
Alternative
Your Positive Value
Drivers
Your Negative
Value Drivers
Differentiation
Value
Economic
Value

18. Economic value
Price of
Alternative
Your Positive Value
Drivers
Your Negative
Value Drivers
Differentiation
Value
Economic
Value
Normal
Price
Range

19. • 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
• Switching costs
• Training
Your Unique Costs
• Compared to the alternativeYour Shortcomings
Economic value drivers

20. • For B2B Pricing
• Understand how you impact your customer’s
P&L
• Understand how your customer impacts its
customers’ P&L
Understand your customers P&L

21. 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

22. Your pricing strategy needs to support your brand
Market Positioning
Brand Attributes
Value Drivers
Target Customers
Pricing Strategy
Pricing

23. “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

24. Putting the pieces together – pricing power
Price of
Alternative
Your Positive Value
Drivers
Your Negative
Value Drivers
Positive
- Brand
- Transfer Pricing
- …
Negative
- Risk
- Switching costs
- - …

25. Putting the pieces together – pricing strategy
Price of
Alternative
Your Positive Value
Drivers
Your Negative
Value Drivers
Positive
- Brand
- Transfer Pricing
- …
Negative
- Risk
- Switching costs
- - …
Premium
Market Following
Penetration

26. Value metric = The unit of consumption
by which your customer gets value
Value metrics

27. Pricing Metric = The unit of consumption
by which you charge
Pricing metric

28. Value Metric ≈ Pricing Metric
Does your pricing metric track your value metric?
Connecting the Value and Pricing metric

29. Tracks Value
Discriminates Segments
Makes it Easy to Buy
Enforceable
Simple
Choosing pricing metrics
Pricing Metric

30. Pricing
Innovation
Cloud
IoT
AI
Pricing innovation

31. Examples of pricing innovation
GE
Jet Engines
Land
Fill
Pay per
Click
???

32. Pricing architectures
Pricing Metric
Value Metric 1
Value Metric 2
Value Metric 3
Pricing Metric
Value Metric 1
Value Metric 2
Value Metric 3
Value Metric 4
Value Metric 5
Pricing Metric 1
Pricing Metric 2
Value Metric 1
Value Metric 2
Value Metric 3
Value Metric 4
Value Metric 5
Value Metric 6
Value Metric 7
• What role does each tier play?
• Are customers meant to convert from one tier to the next?
• How does each tier frame the other?
Value metrics are
used as fences
Each tier has a role
There is a buyer
persona for each tier

33. • Buyer personas in B2B are
complex
• Think in terms of a decision
marking unit
• Map stakeholders and
influencers
• Know how each will evaluate
value and price
Buyer personas
Business Buyer
Procurement IT
Finance
User

34. •Pricing innovation will depend on data
•As product manager 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

35. Connecting data models
Value Model
Track the variables in
your value model
Usage Model
Track how use is
correlated with value
Pricing Model
Base price on value and
use
Subscription
Management
Invoicing
External Data
(Interest Rates,
Energy Prices,
Labour Rates,
Etc.)
Other Systems
(CRM, SCM, Etc.)

36. • Predictive value – Can you predict how much value a customer will get?
• Behavioral pricing – Apply behavioral economics and cognitive science to
pricing
• Dynamic bundling – Built bundles in real time based on value and cost
• Dynamic pricing – Price is generated in real time
• M2M Auctions – Price is negotiated between bots
What the future looks like

37. Understand Value
• Research and validate value drivers for all market participants
• In multisided platforms, map interactions between market participants (see next slide)
Segment the Market and Target Customers
• Find segments that get value in the same way and buy in the same way
• Target segments that get the most value with a reasonable CAC (Customer Acquisition Cost)
Design a Pricing Model
• Identify all of the value metrics (the measures of how users get value)
• Use these to design the pricing metric (how users are charged) and the pricing architecture
Set and Monitor Prices and Performance
• Set prices to optimize for company goals (market share, revenue, profit, cashflow)
• Establish monitoring system to ensure continuous improvement
The Ibbaka Approach

38. • Pricing is based on the value you provide to your customer
• Value has economic and emotional aspects – both matter
• Market segmentation is the foundation of your pricing strategy
• Pricing is a place to innovate
• Connect the value metric and pricing metric
Key takeaways

39. 1. Figure out if you have pricing power.
• Can you raise prices?
• What can you do to increase your ability to raise prices?
2. Ask ‘What role does each of my tiers play?’
• Does each tier have a well defined role?
• Is it actually fulfilling that role?
3. Answer ‘Which of our customers gets the most value from our offer?’
Three Things to Do Tomorrow

40. Discussion
• Pricing challenges? Let’s discuss.
• What are the risks of pricing innovation?
• Are you collecting the data you need? Do you have the rights to use the data
the way you want to?

41. 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
Steven Forth
Managing Partner
steven@ibbaka.com
+1 604 763 7397
TeamFit Skill Profile
Karen Chiang
Managing Partner
karen@ibbaka.com
+1 778 628-4085
TeamFit Skill Profile
Ibbaka on Twitter
Ibbaka on LinkedIn
Ibbaka on TeamFit
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