Innovative Pricing and Packaging Strategies


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Learn key marketing strategies for accelerating subscription business growth and hear best practices first-hand from businesses that have done it. Learn how to use pricing and packaging as a strategic weapon to increase customer acquisition, value per customer and reduce churn.

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  • Session: Innovative Pricing and Packaging Strategies
    Tuesday, June 3 - 11:15 to 12:30
    Format: Presentation and Panel
    Opening presentation by Matt Johnson, Managing Partner, Simon-Kucher
    Moderator: Joe Andrews, Sr. Director, Marketing, Zuora
    Carecloud - Joe Sawyer ,VP Marketing
    Fuzebox - Eran Shtiegman, VP Products
    Axciom - Andrew Landrum, Director of Finance
    There are a number of pricing models to choose from in the Subscription Economy. The key is to know where to start and how to test and iterate over time. Learn how to use pricing and packaging as a strategic weapon to increase customer acquisition and value per customer as well as reduce churn.
  • Innovative Pricing and Packaging Strategies

    1. 1. #Subscribed14 Innovative Pricing and Packaging Strategies Moderator: Joe Andrews Sr. Director, Marketing, Zuora Joe Sawyer VP Marketing, CareCloud Andrew Landrum Director of Finance, Acxiom Eran Shtiegman VP Products, Fuze Presentation: Matt Johnson Managing Partner, Simon-Kucher & Partners @JP_Sawyer@Acxiom @fuze @andrewsjoe
    2. 2. Marketing Panel: Innovative Pricing and Packaging Strategies Day 1: 11:15AM Moderator: Joe Andrews, Sr Director Marketing, Zuora | Matt Johnson, Managing Partner, Simon-Kucher | Andrew Landrum, Director Finance, Acxiom | Joe Sawyer, VP Marketing, CareCloud | Eran Shtiegman, VP Products, Fuze Marketing Leaders: Meet and Greet2:00PM A Tale of Two Pricing Journeys: Evolving to Usage Models11:00AM Todd Krautkremer, VP Sales & Marketing, Pertino Joe Hamlet, Sr Manager, Business Systems, SendGrid Using Analytics to Optimize Revenue and Drive Profitability1:30PM Matt Shanahan, VP of Product Strategy for Scout, ServiceSource Day 2: Innovating Subscription Business Models and Reinventing Your Go-To-Market 3:00PM Clodagh Murphy, Managing Director, Eclipse Internet Marketing Track Agenda Five Secrets for Your Pricing and Packaging Journey 4:00PM Guy Marion, Sr Director, Online & Acquisition, Zendesk
    3. 3. Simon-Kucher Capabilities Briefing 3 Smart Profit Growth – Best practices in subscription pricing Simon-Kucher & Partners June 3, 2014 Matt Johnson 100 View St. – Street Mountain View, CA 94041 Tel. (650) 691-3315 Fax (650) 641-4317 e-mail:
    4. 4. Simon-Kucher Capabilities Briefing 4#Subscribed14
    5. 5. Simon-Kucher Capabilities Briefing 5 Simon-Kucher at a glance Source: German manager-magazin Aug 2007 & 2011 / Institute für Management und Beratung; Survey among 264 top-managers; Maximum 500 points Global presence since 1986 Competence ranking "Marketing & Sales" > 2,000 projects in past three years World market leader in pricing 1 Simon-Kucher & Partners 2 Boston Consulting Group 3 McKinsey & Company 4 Bain & Company 5 Roland Berger 395 379 359 347 342 27 offices worldwide 700+ associates Amsterdam Beijing Bonn Boston Brussels Cologne Copenhagen Dubai Frankfurt Istanbul London Luxembourg Madrid Milan Munich New York Paris San Francisco Santiago de Chile Sao Paulo Singapore Sydney Tokyo Toronto Vienna Warsaw Zurich  Pricing excellence  Growth and competitive strategies  Product portfolio (re-)design  Customer relationship and customer value management  Sales strategies and sales channel optimization "world leader in giving advice to companies on how to price their products" "…the world's leading pricing consultancy…" Peter Drucker "... in pricing you offer something nobody else does." "pricing strategy specialists" Smart Profit Growth Strategy >400 Marketing >500 Sales >500 Pricing >1,000
    6. 6. Simon-Kucher Capabilities Briefing 6 Simon-Kucher works with industry leaders in all sectors… Source: Simon-Kucher & Partners. TMT Consumer Industrials Healthcare Financial Services Tech Consumer Brands Chemicals/ Construction Pharma Banking Media Retail Manufacturing Biotech Payments Telecom Leisure Automotive Medical Devices Insurance Top 25 largest companies Top 10 largest companies Top 10 largest companies Simon-Kucher clients: 80% Simon-Kucher clients: 70% Simon-Kucher clients: 96%
    7. 7. Simon-Kucher Capabilities Briefing 7 ..and has deep experience in subscription businesses B2B SaaS companies Transitioning to SaaS Simon-Kucher has a long track record of helping companies accelerate their growth through effective pricing strategy and execution #Subscribed14 Consumer internet companies
    8. 8. Simon-Kucher Capabilities Briefing 8 Total Pharma, biotech/medtech Consumer goods Financial services Automotive Transport/logistics 6… 35% Global Pricing Survey: A minority of companies achieve pricing power * 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 8 High pricing power*Low pricing power “Pricing Power” assessment 53 % 47 % 30 % 27 % 19 % 47 % 53 % 70 % 73 % 81 % Only 35% are able to get the prices they deserve!
    9. 9. Simon-Kucher Capabilities Briefing 9 Global Pricing Survey: Pricing power has strong impact on profits Source: Simon-Kucher & Partners Global Pricing Study 2012/2014 9 133 100 Average EBITDA of last three years (index) Companies with high pricing power All others “Pricing power” increases profits by 33%
    10. 10. Simon-Kucher Capabilities Briefing 10 The market has figured this out…and will reward you! Source: Warren Buffett in an interview with FCIC, May 2011 "The single most important decision in evaluating a business is pricing power." Warren Buffett
    11. 11. Simon-Kucher Capabilities Briefing 11 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 Top 10 pricing programs among subscription businesses 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 #Subscribed14
    12. 12. Simon-Kucher Capabilities Briefing 12 Source: Simon-Kucher Best practice: Develop the key insights required for good pricing Benchmarks & alignment Sales deep-dive: Deal Reconstructions & Survey Data analysis  SKP Scorecard used to benchmark pricing practices against hundred of companies  GoalStrat used to align executive stakeholders around real strategic tradeoffs ImplementationDesignAnalysis 1 32 Pricing stakeholder analysis  Transaction data: Sold-together, upsell paths, cluster analysis, win-loss....  Usage data: Feature value, product engagement, support patterns…  Deal reconstructions provide context-rich data points on process and skills best practices and breakdowns  Sales survey allows us to quantify deal-level pricing drivers and approach differences  Price Metric Evaluation  Leaders/Fillers/Killers: Packaging framework  ComStrat Competitive positioning  PriceStrat: Market price response
    13. 13. Simon-Kucher Capabilities Briefing 13 Source: Simon-Kucher Best Practice: Test and refine subscription offering concepts and develop the tools and process to support the rollout ImplementationDesignAnalysis 1 32 Customer/Prospect Research Process Design Financial Modeling  Qualitative interviews: Purchasing process, budgetary thresholds, metric acceptability  Quantitative survey/testing: Simulated purchase, packaging/pricing optimization, market share impact Org Design  Unit-level modeling: Deal structure tradeoffs  Packaging & pricing scenario modeling  Deal escalation structure: Levels of authority, checks & balances, basis for decisions  Revised sales incentives: Monetary and non-monetary value / price defense components  Revised Pricing Organization: Roles, responsibilities, and communication touchpoints  Internal / external skills requirements
    14. 14. Simon-Kucher Capabilities Briefing 14 Price optimization: Capture full value from your product Source: Simon-Kucher Goals Features & value proposition Target market & segmentation Price structure Price level 1 2 3 4 5 What are the goals for your product?  Financial goals: # of users, revenue, ARPU…  Customer goals: increase usage/engagement, virality, loyalty…  How to align with brand personality / perception What are the product’s main value drivers?  Feature adoption and usage  Feature value and willingness to pay  Which features differentiate your product from competition? Who are the ideal customers? Which segment should we be targeting?  What drives differences in needs, behaviors, and willingness-to-pay (e.g. Apple vs. Android, smartphone vs. tablet, US vs. intl)  Mobile: Migration strategy vs. new customer acquisition strategy What are the optimal price levels, given our goals…  Financial goals, customer goals, brand personality  Aligned with product roadmap and enables portfolio strategy Positioning within your portfolio 4 What is the app’s role within your company’s broader portfolio?  Facilitate penetration/customer acquisition, up-sell/cross-sell, or retention?  What is the potential for bundling the app with company online offerings? What price structure will generate the highest mix of adoption and revenue?  Paid vs. classic freemium vs. in-app purchases  And if freemium, how should we fence the premium offering?  If in-app purchases, what should we structure the upsell offers?  Should we charge a one-time fee or subscription?
    15. 15. Simon-Kucher Capabilities Briefing 15 Source: Simon-Kucher ImplementationDesignAnalysis 1 32 Value Selling Tools & Training People / Process / Systems Support Migration Plan & Financial model  Value Selling Tools: Deal pricing drivers, value messaging, deal analytics  Negotiation strategy & tactics: Best practices from external benchmarks and internally from Deal Reconstructions Channel Partner Programs  Migration plan: Availability and communication strategy  Company level modeling: Migration tradeoffs and revenue evolution forecasting  Hire & train new team members  Pricing Program Office: Ad hoc support during transformation process  System/KPI recommendations  Channel partner strategy: Identify optimal channel partner mix and route-to-market  Channel partner incentives: Align partner rewards and pricing with value-add activities Best Practice: Ensure a smooth rollout and maximum value capture DEAL SUMMARY EQUINIX EXTERNAL KPIs IBX (1-4): Term (months): Total Draw sold (kVA): # Cross-connects: IBX (5-8): Billing start date: Allocated capacity (kVA): # Exchange ports: IBX (9-10): IX MRR (as % of Total MRR): SPACE & POWER RECOMMENDED PRICING (Full Detail) EQUINIX COMPETITIVE ADVANTAGES IN THIS DEAL SPACE & POWER RECOMMENDED PRICING (Condensed) 1 2 3 4 5 6 7 8 9 10 CUSTOMER "FIT" WITH EQUINIX 6 - 20% Network Provider density & low latency solutions 5 / 10 M edium priority to pursue _NY7 36 01/31/20 Partner ecosystem density NA footprint (# of sites & desirability of locations) Global footprint (# of sites & desirability of locations) _DC10 86 714 _DC4 Deal CriteriaCustomer Criteria 100% 14% 86% 6% 2% 0% 1% 0% 2% 15% 0% 0% 0% 2% 0% 68% 10% 78% List price Avg. IBX discount Baseline price Vertical impact Strategic importance of customer Customer business rationale Metered power Expected power evolution Expected space & XC evolution Deal size Free months / price increases Contract duration Annual escalator Primary / redundant circuit ratio Payment terms Target price Balance of Power Starting price 100% 14% 86% 6% 2% 0% 10% 68% 10% 78% List price Avg. IBX discount Baseline price Vertical Strategic importance of customer Customer business rationale Deal criteria Target price Balance of Power Starting price SKP Molex Training Materials – June 15, 2010 - 12 -DRAFT – WORKING COPY Group 1 Buyer Team Seller Team A Seller Team B Group 2 Buyer Team: HAPL2Compete against each other Compete against each other Compete against each other Compete against each other Compete against each other Compete against each other Simulation case study: Annual key account contract negotiation Seller Team A Seller Team B
    16. 16. Simon-Kucher Capabilities Briefing 16 Don’t lose in the final mile: Increase conversion through optimized sales dialog Facilitate product & needs discovery Create differentiated free trials: one for consumers with an emphasis on sharing and privacy and one for Pros that includes full commerce Introduce a guided product demo (for each type of account) instead of or in addition to the free trial (e.g. interactive tour through a fully functional, impressively designed site) Test alternative trial formats, e.g.: - Extended trial (e.g. 30 days +) - Negative option trial Ease product selection Design distinct and personalized sales dialogs based on entry point and customer segment (e.g. separate landing pages for Pros and Consumers based on adwords clicks) Create messaging that communicates the value of each package to the targeted customer segment Reduce friction throughout the process (e.g. by moving email input form after initial picture upload) Create call to action Use scarcity, herding, and limited time offers to generate urgency Include option to sign-up on initial offer/pricing page (i.e. today's "features page") Send promotions 7 &/or 14 days after trial period expiration to those who didn't sign up (e.g. discount off 1st year sub, gift credits) Utilize consumer psychology Test a substantially discounted first year (second year reverts to list price) Change "trial language" to "First 2 weeks free, no commitment" to boost sense of ownership and engagement Re-design offer/pricing page #Subscribed14
    17. 17. Simon-Kucher Capabilities Briefing 17 Pricing Psychology: Pricing models often assume the “economic” person… #Subscribed14
    18. 18. Simon-Kucher Capabilities Briefing 18 Source: Simon-Kucher project experience; numbers and client industry anonymized …but buyer “economics” are heavily perception driven Respondents were presented with the following breakeven scenarios (all fee calculations come out to be the same): Fee Structure % Selecting 3.5% + $0.15 flat fee $0.50 Flat $ fee 5% Flat % fee Indifferent Fee Structure % Selecting 3.5% + $3 flat fee 5% Flat % fee $10.00 Flat $ fee Indifferent $10 item $200 item For smaller transactions, consumers preferred simplicity / transparency ($1.00); For larger transactions, consumers preferred the most complex fee structure For smaller transactions, consumers preferred simplicity / transparency ($0.50); For larger transactions, consumers preferred a more complex fee structure Project Example: Internet PPU
    19. 19. Simon-Kucher Capabilities Briefing 19 Source: SKP project 2012 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: May 2012 After re-design: August 2012 Plus (55%) - $39 Plus (24%) - $39 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 $162K 62% Simon-Kucher Capabilities Briefing 12 Case Study: Package & pricing re-design increased ARPU* by 88% & MRR* by 62% Project Example: SaaS
    20. 20. Simon-Kucher Capabilities Briefing 20 Anchoring effects: improving offer attractiveness Source: Dan Ariely, Predictably Irrational, New York: Harper Collins 2008, p. 1-6 Options & results: Group 1 Option Price in US-$ % of people choosing option subscription only $59 68% Print + subscription $125 32% Average revenue per subscriber $80.12 Options & results: Group 2 Option Price in US-$ % of people choosing option subscription only $59 16% Print only subscription $125 0% Print + subscription $125 84% Average revenue per subscriber $114.44 Subscriptions: Pick the type of subscription you want to buy or renew. 68% 32% 16% 0% 84%
    21. 21. Simon-Kucher Capabilities Briefing 21 Anchoring effects: another example Source: SKP project, 2012 Current account €1 21% Current account + Credit card €2.50 59% Current account €1 41% Current account + Credit card €2.50 78% Credit card €2.50 1% Group 1 Group 2 no. 140 observations no. 152 observations
    22. 22. Simon-Kucher Capabilities Briefing 22 Three Big Takeaways 22 “Power Pricing” = 33% increase in profits 1 2 3 Analysis, Design and Implementation Leverage customer psychology #Subscribed14
    23. 23. Simon-Kucher Capabilities Briefing 23 Amsterdam Beijing Bonn Boston Brussels Cologne Copenhagen Dubai Frankfurt Istanbul London Luxembourg Madrid Milan Munich New York Paris San Francisco Santiago de Chile São Paolo Singapore Sydney Tokyo Toronto Vienna Warsaw Zurich 100 View Street Mountain View, CA 94041 Tel. (650) 641-4300 Fax (650) 641-4317 Thank you!
    24. 24. Andrew Landrum Acxiom 1. What does Acxiom do? 2. What is your role? 3. What is your brief pricing and packaging journey? Panel Introductions @Acxiom
    25. 25. Joe Sawyer CareCloud 1. What does CareCloud do? 2. What is your role? 3. What is your brief pricing and packaging journey? Panel Introductions @JP_Sawyer
    26. 26. Eran Shtiegman Fuze 1. What does Fuze do? 2. What is your role? 3. What is your brief pricing and packaging journey? Panel Introductions @fuze
    27. 27. 1: 2: 3: GROWTH: What are your top growth priorities and how does pricing and packaging support your growth? CUSTOMER ACQUISITION: What is your view on free trials vs. freemium model and what are keys to success with each? RETENTION & UPSELLS: What levers are you using to reduce churn and increase customer value? Driving Pricing and Packaging Innovation Panel Questions 4: PRICE TESTING / ITERATION: How frequently do you test and what are you learning? 5: ADVANCED PRICING MODELS: What’s your experience and/or plans with usage-based, bundling, international, etc?