www.simon-kucher.com How to win with
New Price Models & Packaging Pricing Strategies for tomorrow Auckland, August 4th, 2015 Chris Petzoldt, Managing Director Australia / New Zealand Sydney office Level 32, Northpoint Tower 100 Miller Street North Sydney NSW 2060, Australia Tel. +61 2 91121301 chris.petzoldt@simon-kucher.com

Zuora presentation 2015 - Simon-Kucher
Overview Pricing – an increasing challenge Capture value with New Price Models Capture value with Packaging Strategies Need help? Simon-Kucher can support! 2

Zuora presentation 2015 - Simon-Kucher
Global Pricing Study; 1,615 companies across the world; 39% C-level executives Source: Simon-Kucher & Partners Simon-Kucher's Global Pricing Study 2014 report increasing price pressure83% are in price war58% price implementation rate – lowest number ever measured37% 3

Zuora presentation 2015 - Simon-Kucher
Why is this so alarming? -23% -23% -28%5% decrease in volume... 5% increase in fixed cost ... 5% increase in variable cost ... Example profit & loss structure Resulting decrease of operating income* Fixed cost 45 Variable cost 45 5% decrease in price... Operating income 10 Price = 1, Volume = 100 Revenue 100 4

Zuora presentation 2015 - Simon-Kucher
Global Pricing Study; 1,615 companies across the world; 39% C-level executives Source: Simon-Kucher & Partners Top solutions companies see to cope with increasing price pressure Top options to escape oppressive market conditions* 12% 16% 19% 20% 26% Share of respondents* Introducing new, innovative, or differentiated products Changing the revenue model and the way customers think about price and value Strengthening sales & marketing functions to support value creation & communication Reducing our variable or fixed costs Changing mindset and confidence in our ability to implement higher prices 5

Zuora presentation 2015 - Simon-Kucher
Overview Pricing – an increasing challenge Capture value with New Price Models Capture value with Packaging Strategies Need help? Simon-Kucher can support! 6

Zuora presentation 2015 - Simon-Kucher
Case 1: From fixed to success based Situation & Challenge Solution Project Example: B2B Marketplace Global online platform to connect buyers and suppliers, secure invoice and payment capabilities, and software (buyers only) Price model:  Membership model for buyers  Flat fee per relationship for suppliers with qualifying activity level Challenges:  Limited number of buyers  No monetisation of network growth  Huge tail of small customers  One size fits all pricing created barrier to adoption by small customers Breakeven Total spend total invoice value processed “old” flat fee Old price New % of spend Revenue impact: + 300% 7

Zuora presentation 2015 - Simon-Kucher
Case 2: From usage based to two-part tariff Situation & Challenge Solution Project Example: Rail operator Long-haul passenger transport, regional passenger transport Price model:  “Pay-as-you-go” for more than 100 years  Ticket price based on distance traveled Challenges:  Increasing competition from low-cost airlines and private cars  Decrease in passenger numbers and revenue More than 4m Bahncards sold Increase in passenger volume Revenue impact EUR 100m p.a. appr. 1,900 km Total spend total km per year BahnCard 50% “old” pay- as-you-go 140 € per year 8

Zuora presentation 2015 - Simon-Kucher
Case 3: From fixed to customer value based Situation & Challenge Solution Manufacturer of truck tires developed innovative new tire that has a 20% higher durability Price model:  Pay per tire  Discount for higher volumes of tires Challenges:  Intense price competition across channels  No possibility to charge higher price for new, more valuable tire  New value proposition: Solution provider: "Keep your truck rolling"  New model: Price/km - trucker's cost aligned with revenue basis  New pricing perspective: Focus on TCO rather than unit price  Monetisation of innovation: "Automatically" higher price for better value (duration) Project Example: Tire manufacturer 9

Zuora presentation 2015 - Simon-Kucher
Simon-Kucher approach step 1: Assess customer value perception Peter F. Drucker "Customers don't buy products, they buy the benefits that these products and their suppliers offer them." 10

Zuora presentation 2015 - Simon-Kucher
Simon-Kucher approach step 2: Find price model that can capture the created value best $ Fix price Flat fee units Price Two dimensional units Price PAYG units Price Regressive units Price Capped units Price Fixed units units Price Adaptive flat rate (for successive years) units Price Possible subscription models 11

Zuora presentation 2015 - Simon-Kucher
Simon-Kucher approach step 3: Optimise price levels for new price model Value drivers Price hierarchy Price thresholds Competitive advantages and their value as a basis for value pricing approach Optimal price structure within one product category based on value drivers Optimisation of price points Base prices on product value Ensure consistent pricing logic Fine-tune prices for consumers’ eyes GoalMethods(examples)Results Conjoint analysis Van Westendorp Gabor Granger Price Map 12

Zuora presentation 2015 - Simon-Kucher
Overview Pricing – an increasing challenge Capture value with New Price Models Capture value with Packaging Strategies Need help? Simon-Kucher can support! 13

Zuora presentation 2015 - Simon-Kucher
Packaging cannot be that hard – can it? 14

Zuora presentation 2015 - Simon-Kucher
Bad example: Packaging is more than A+B – 15%  This "trial" cost a high two-digit million figure  Manager at Rogers: "This was our first attempt. We just wanted to try out packaging. Meanwhile, we do a better job."  Conclusion: Poor packaging destroys value 15

Zuora presentation 2015 - Simon-Kucher
Bad example: There should be a package portfolio not an all- in 16

Zuora presentation 2015 - Simon-Kucher
Bad example: Packages need to differentiate on relevant features 17 A B C Should these features be differentiated across packages? Are these features valuable enough to create up-sell? Should these features be differentiated across packages? … … … …

Zuora presentation 2015 - Simon-Kucher
Well-designed packages create a win-win Increased customer satisfactionValue capturing Vendor perspective Customer perspective Packaging Receive discounts (or other incentives) Exploit differences in customer willingness-to-pay Enhance cross-selling Compete on breadth of portfolio/solutions Buy solutions, not products Enjoy convenience (one-stop shop) Reduce transaction/ search/delivery costs Decrease price transparency Reduce costs (Economies of scope in sales/ops) 18

Zuora presentation 2015 - Simon-Kucher
Packaging can exploit differences in willingness-to-pay $ WtP Co. Profit $ Co. WtP Profit Volume $ WTt* Co.** Profit Example  Customer with limited budget: $5  Max. willingness to pay for either coffee or cake: $3  Customer would buy either coffee or a cake  Bundle price: $5  customer buys both  Win-Win: Customer benefit = discount Provider benefit: 50 % more profit Price $3 Price $3 Price $5 Individual customer's budget: €5 * WtP =Willingness to Pay ** Co. = variable costs Volume Volume 19

Zuora presentation 2015 - Simon-Kucher
Simon-Kucher approach step 1: Define packaging strategy Degree of complexity (# of offers)Simple Complex  Definition: One offer with all products & features included  Examples: Workday HCM  Definition: Packages which combine a variety of product categories  Examples: Fortknox  Definition: A variety of packages with increasingly more feature functionality  Examples: Xero  Definition: A variety of packages with implementation complexity limitations  Examples: US Sage Accounting  Definition: A build-your-own package approach with bundled discounts  Examples: Oracle Price Bundling All-you- can-eat Category bundling Good/ Better/ Best: Features Good/ Better/ Best: Complexity 20

Zuora presentation 2015 - Simon-Kucher
Simon-Kucher approach step 2: Define package contents ... selected "leader" products High value products / features that most customers want to or "must" buy. Coke & Fries ... some "filler" product(s) Medium value products / features that most customers consider "nice to have." Coffee ... NO "killer" product(s) Products which either have "own" willingness-to pay-or no bundle fit A successful package consists of ... 21

Zuora presentation 2015 - Simon-Kucher
Product/feature evaluation matrix Identifying leaders, fillers, and killers using the Simon-Kucher feature evaluation matrix 1 2 3 4 … Features/modules Simon-Kucher Project Example 22

Zuora presentation 2015 - Simon-Kucher
Simon-Kucher step 4: Develop package portfolio and pricing Good-better-best: Role based packages:  Packages with increasingly more feature functionality  Differentiation across customers based on value and willingness-to-pay  Need for behavioural tactics to steer choice  Packages that are targeted at specific types of users  Clear segments or use-cases drive package choice  Use cases don’t change over time (no upsell path) 23

Zuora presentation 2015 - Simon-Kucher
Example impact of packaging optimization Source: Simon-Kucher project example Approach  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: After re-design: Plus (55%) - $39 Plus (24%) - $39 (reduced value) Deluxe (32%) - $79 Deluxe (48%) - $99 (Price increase) Elite (12%) - $149 Elite (21%) - $199 (Price increase) Advantage (7%) $349 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% May August % of new subscribers New tier # of new subs 1,524 1,313 -14% Average MRR per new subscriber $66 $124 88% MRR from new subscribers $100K $162K 62% Project Example: SaaS Impact 24

Zuora presentation 2015 - Simon-Kucher
Overview Pricing – an increasing challenge Capture value with New Price Models Capture value with Packaging Strategies Need help? Simon-Kucher can support! 25

Zuora presentation 2015 - Simon-Kucher
Source: manager magazine, August 2011/IMB, survey among German top managers Simon-Kucher is the world’s leading advisor in Pricing 800 employees 29 offices world-wide Amsterdam Barcelona Bonn Brussels Cologne Copenhagen Frankfurt London Luxembourg Tokyo San Francisco New York Boston Sydney Singapore Beijing Dubai Istanbul Madrid Milan Munich Paris Vienna Warsaw Zurich Toronto Santiago de Chile São Paulo 1 Simon-Kucher & Partners 2 Boston Consulting Group 3 McKinsey & Company Best consultancies in marketing and sales* manager magazine World leader in giving advice to companies on how to price their products Pricing strategy specialists The world’s leading pricing consultancy In pricing you offer something nobody else does BusinessWeek The Economist Professor Peter DruckerThe Wall Street Journal World leader in pricing Atlanta 26

Zuora presentation 2015 - Simon-Kucher
Source: Simon-Kucher & Partners Simon-Kucher specialisation: Strategy, Marketing, Sales and Pricing Pricing Strategy Marketing Sales  Strategic goals and direction  Pricing strategy  Growth strategies  Business models  Competitive strategy  Market sizing/forecasts  Market due diligence  Corporate organisation  Customer segmentation based on value, needs, willingness to pay  Value and brand positioning  Product and service development  Portfolio design and management  Marketing effectiveness and efficiency  Customer retention and loyalty programs  Up & Cross sell initiatives  Price models and bundling  Price setting (launch and post-launch)  Rebates, incentives and discount systems  Price negotiation and key account pricing  International pricing  Price organisation and processes  Price monitoring and controlling  Pricing training programs  New channel development/ partnering  Up and cross-selling  Sales channel mix  Channel incentives  Sales force organisation  Sales force performance and compensation  Negotiation support  Sales force training programs 27

Zuora presentation 2015 - Simon-Kucher
Simon-Kucher support clients across industries… Dow Jones DuPont Emirates Europcar Ferrero Fresenius Goldman Sachs Honeywell Hewlett Packard HSBC Intel Iveco Johnson-Johnson Kia KPN Kimberly-Clark Lufthansa LA POSTE LinkedIn Medtronic MetLife Michelin Microsoft Nestle Nikon Permira Porsche RBS SAP Siemens SingTel Swisscom Shell Skype Smith & Nephew Telefonica TPG TNT UBS Vodafone Volkswagen Zurich ABB Accor Adidas Allianz Assa Abloy Audi Axa Barclays Bayer BMW Bosch British Airways Caterpillar Castrol Citibank Citrix DaimlerChrysler DB Schenker Deutsche Bank Deutsche Telekom DHL AMP Ashdown Ingram Bostik Castrol Coats Commercialisation Australia CSR Fairfax Media Foxtel Innovations Development Australia Komatsu META Optus Outotec Rexel Rio Tinto Sanitarium Secure Parking Skaffold Sky NZ Spirit of Tasmania Tapestry Telecom New Zealand Vodafone Fiji Selected international references Local references (AUS/NZ/Fiji) 28

References in the subscription space
Telco Software & othersOnline Media Zuora presentation 2015 - Simon-Kucher Selection Axiata Hutchison 3 Indosat Macquarie Telecom Optus Ooredoo SingTel Telefonica Telecom / Spark T-Mobile Vodafone … Abril Bertelsmann Bloomsbury Fairfax FAZ PubliGroupe Reed Business Infor. Tamedia Scholastic The Economist Wiley … Anchestry.com Cars.com ImmoScout Gameforge LinkedIn LifeLock Manheim Skype Trulia TotalJobs Xing … Adobe Advent Activision Citrix Deutsche Bahn FC Cologne Intuit Michelin Microsoft Paris St Germain SAP Ubisoft … 29