A Tale of Two Pricing Journeys: Evolving to Usage Models


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Usage based pricing is often perceived to be the truest pricing model that best aligns to customer value. Join two cloud services firms, Pertino and SendGrid, as they share their pricing journeys, their quest to evolve to new models built around consumption, and their learning along the way. They will discuss pros and cons of different models and address the business case and operational requirements to support.

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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.
  • 1 speaker
  • According to McKinnsey & Co, email is 40 times more effective than Facebook and Twitter combined as a way to acquire new customers.

    Application-generated transactional emails including social alerts, promotions, receipts and password resets - fuel customer engagement and drive sales IF they make it to the inbox.

    Lost emails means lost customers and revenue.

    Users get frustrated when they cant reset their passwords leading to poor customer service
    Emails are the transactional records for order history, billing (uber)
    Email is a powerful retention tool for marketers (pinterest)
    Email drive sales through daily deal notifications

  • We deliver value through:
    Best in class delivery– “whitehat sender”
    Incredibly Scalable Architecture
    World Class Support (24/7)
    Reliability - high up-time, cloud services
    Actionable, real-time Analytics
    Ease of use – integrate in min, not weeks
  • Freemium
    Most Customers Self-Purchase
    Usage based on email volume
    Lots of volume – 13B/m
    Month to Month – no contracts
    Simple pricing (MRR + Overage)
  • Freemium model
    Monthly subscriptions based on email usage
    Simple product and pricing
    Self-service sign-up, purchases, upgrades, downgrades
    Scalability & Predictability
  • Charge for upgrade immediately (bill run / rate usage)
    Load usage after upgrade for prior day

    Potential Revenue Loss
    Manual billing work (invoice adjustments)
    Added overhead to monthly bill runs
  • Charge for upgrade immediately (bill run / rate usage)
    Load usage after upgrade for prior day

    Potential Revenue Loss
    Manual billing work (invoice adjustments)
    Added overhead to monthly bill runs

  • Volatility in revenue
    Unpredictability in Revenue
    Customer satisfaction – customers can’t predict their costs, like to have known variable

  • Created more high volume packages to reduce package tier stepping – smooth out
    Removed (restricted use) features that were purely volume based pricing / changed to recurring revenue
    Smooth out tiers
  • Tiered usage + MRR:
    High volume options – fixed MRR with tiered usage rates (decrease volatility)

    Usage Types:
    Newsletter vs. infrastructure
    API calls
    Application X action (load tests, etc.)
    List Sizes

    Package options:
    Al a cart – addons and partner apps (app store)

    Usage Loading:
    Load multiple times a day
    Ability to rate hourly to reduce risk
  • A Tale of Two Pricing Journeys: Evolving to Usage Models

    1. 1. A Tale of Two Pricing Journeys Evolving to Usage-Based Models Todd Krautkremer VP Marketing Joe Hamlet Senior Manager, Business Systems @tkrautkremer @jhamlet
    2. 2. #Subscribed14 @tkrautkremer Todd Krautkremer VP Marketing
    3. 3. #Subscribed14 @tkrautkremer About Pertino – What We Do Cloud Network Service that lets anyone build a secure network in minutes, connecting everyone with everything IT, from anywhere. • GA Launched in Jan 2014 • 5,000+ Freemium customers • 130 paying customers in 5 months • Targeting SMB IT organizations • Inbound marketing model • Consumption-based pricing
    4. 4. #Subscribed14 @tkrautkremer About Pertino – Current Pricing
    5. 5. #Subscribed14 @tkrautkremer Changing Buyer Landscape Losing control of the audience • Attention economy • Wealth of information is creating a poverty of knowledge Losing control of the message • Customers seek out and trust other sources • Can’t control what is said, who’s saying it, how fast it travels Losing control of the brand • Brand affinity based on experience, instinct and feels right • People don’t like to be sold, they like to buy, and they buy in tribes Losing control of the sales process • 98% of all IT buying processes start with a search • 57% of the buying journey is complete before sales enters the picture
    6. 6. #Subscribed14 @tkrautkremer What Does It All Mean? Customer preference is driven by third-party Influence and hands-on experience Buying process is increasingly driven by customer’s “compelling events” It’s essential to intimately understand customer’s buying journey Product moving upstream in sales process, packaging/pricing are enablers Buyer’s Journey Map – The Path to Purchasing Engage Product Engage Process Engage Content
    7. 7. #Subscribed14 @tkrautkremer Which Free-mium is Right For You? High Reach Millions Low Affinity High Affinity Collaborative Value (more users drive more users, user-perpetuating) High growth, highly viral Low Reach 100K’s Alternative Value (give away product to build community) Lower growth, higher value Experiential Value (facilitate buyer’s journey, offset marketing expense) Lower growth, higher conversion Usage Value (value increases with usage, self-perpetuating) High growth, faster CAC recovery
    8. 8. #Subscribed14 @tkrautkremer Common Pricing Misconceptions Two wrongs don’t make a right, but three lefts do! 1. Everyone should be happy to pay for your product 2. There’s some mythical “perfect” price 3. Pricing can never be changed once chosen 4. Delaying charging indefinitely due to 1, 2 or 3
    9. 9. How Do You Determine Pricing? Slide 9 == + = + Relational Value Analysis (+/= indicates perceived value of Pertino from Spiceworks Community)
    10. 10. #Subscribed14 @tkrautkremer How Do You Determine Pricing? Local Maxima Consumer Surplus Demand Curve Demand Curve mapped to profit Bronze Silver Gold Demand Curve Analysis
    11. 11. #Subscribed14 @tkrautkremer Evolving To Usage PricingPricing Product Maturity GB/month Hybrid Devices Users Freemium Support enterprise (e.g. pooling) Support multi-device Starting point Support new use cases (e.g. DR) We are here
    12. 12. #Subscribed14 @tkrautkremer Pricing In Context of SaaS Metrics LTV > 3X CAC CAC back < 12 mo.
    13. 13. #Subscribed14 @tkrautkremer Platform Considerations • Best-of-breed approach • End-to-end automation • Deep SaaS platform Integration • Facilitates buyer’s journey at every waypoint • Agile, scalable billing platform • Swapping out systems while scaling is difficult SaaS Operational & Automation Platform Build For the Business Your Building
    14. 14. #Subscribed14 @tkrautkremer Summary • Pricing as strategy, not pricing strategy • Buying landscape has changed, deal with it • Understand your customer’s buying journey • Pricing and packaging play a role in the buyer’s journey, not just the destination • Balance market factors with SaaS metrics • Choose your platforms wisely, billing can be a boon or bane
    15. 15. #Subscribed14 @jhamlet Joe Hamlet Senior Manager, Business Systems
    16. 16. #Subscribed14 A Snapshot of SendGrid Denver, CO Boulder, CO Orange County, CA Providence, RI Romania Key Customers Founded 2009 210 Employees 160K Customers 13 Billion Emails Sent Developer Focused
    17. 17. of the world’s wanted email does not reach the inbox 20%
    18. 18. #Subscribed14 Value Proposition
    19. 19. #Subscribed14 SendGrid Pricing Story
    20. 20. #Subscribed14 Make it Simple, Make it Scale
    21. 21. #Subscribed14 Package Changes Mid-month package changes  Risk of revenue loss  Operational overhead
    22. 22. #Subscribed14 Package Changes Solution Load usage daily Queuing
    23. 23. #Subscribed14 Usage Volatility Overage based pricing  Revenue volatility  Decreased predictability
    24. 24. #Subscribed14 Solution Reduce usage based pricing model Volume based packages choices Tiered + Recurring usage model Usage Volatility
    25. 25. #Subscribed14 What’s next
    26. 26. #Subscribed14 Q&A Todd Krautkremer VP Marketing Joe Hamlet Senior Manager, Business Systems @tkrautkremer @jhamlet