Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Price workshop day one

20 views

Published on

Pricing workshop given at DayOne accelerator by Ian Tidswell of EEN consulting.
https://www.eenconsulting.com/
May 2019

Published in: Health & Medicine
  • Be the first to comment

Price workshop day one

  1. 1. DayOne Pricing Workshop Basel, 7th May 2019
  2. 2. Goals for the day • Review some pricing basics • Review pricing drivers • Identify pricing options • Assign next steps (HOMEWORK!)
  3. 3. Introductions • Name and Company • What is your Core Value Proposition? • What is the core target market(s)? • What is included in the offer? • How will you price the offer? • What are your top 2-3 questions on pricing? • Maximum 3 minutes each!
  4. 4. Focus Organization Location 10 Upper Cumberworth Primary Scissett Middle School 20 30 40 50 Physics Software Pricing Business General Education 0 Shelley High School Follicular Retreat My Journey © 2019 een Consulting GmbH. All rights reserved. 4
  5. 5. Helping B2B companies increase profits through better pricing • Training via hands-on workshops • Innovation pricing framework • Price strategy • Maturity diagnostic • Coaching • Pricing systems guidance © 2019 een Consulting GmbH. All rights reserved. 5 Innosuisse Swiss Innovation Agency
  6. 6. 42Wrap-up and next steps4 28Price Architecture3 15Pricing Context2 7Introduction1 DayOne Pricing Workshop © 2019 een Consulting GmbH. All rights reserved. 6
  7. 7. 42Wrap-up and next steps4 28Price Architecture3 15Pricing Context2 7Introduction1 DayOne Pricing Workshop © 2019 een Consulting GmbH. All rights reserved. 7
  8. 8. Why spend time on pricing? "Pricing is the moment of truth – all of marketing strategy comes to focus on the pricing decision.” - Raymond Corey, Harvard Business School © 2019 een Consulting GmbH. All rights reserved. 8
  9. 9. The key elements of successful pricing Deliver value Communicate value Create value Extract value VALUE DELIVERY VALUE CAPTURE Price Offer: Products & Services BE TARGETED BE DIFFERENT FORCE TRADE-OFFS Pricing Essentials © 2019 een Consulting GmbH. All rights reserved. 9
  10. 10. How come so many companies struggle to price well…? • Complex topic requiring cross-functional collaboration (marketing, sales, finance, development) • Companies “don’t know what good looks like” • Value of products and services to customers & stakeholders not well understood • Pricing just happens, rather than being designed • Few tools & systems support pricing and only used inconsistently • Multiple operational challenges, including no feedback loop © 2019 een Consulting GmbH. All rights reserved. 10
  11. 11. The MedTech adds even more complexity • Strong regulatory requirements differ by country & evolve slowly • Dominant government funding increases scrutiny • Short product lifecycles: organizational and learning impact of frequent product changes • Multiple important but fragmented stakeholders with ‘agency’ complexity • Complex ethical implications from pricing Getting pricing right is not always easy, but it is always important! © 2019 een Consulting GmbH. All rights reserved. 11
  12. 12. Remember… "Customers don't buy products, they buy the benefits that these products and their suppliers offer to them." - Peter Drucker, Management Guru Customers buy based on value even if you, don’t price and sell based on value! © 2019 een Consulting GmbH. All rights reserved. 12
  13. 13. Pricing Landscape Value & Price Architecture ▪ How do we value & price our products and services?` Pricing Practices Competition ▪ What are the customer’s alternatives & competitive pressures? • Core Offer Customers & Channels ▪ Which market and market segments will we target? ▪ Which channels will we use to reach customers? Market Drivers Strategy & Goals ▪ What are our strategy, business model & goals? Internal Drivers Offer Structure ▪ What product and service offers and options will we sell? Insights & Analysis ▪ What must we know to make robust decisions? List & Target Setting ▪ What value do we deliver to customers? ▪ What share of the value we create can we expect to capture? Execution ▪ How can we minimize pricing leakage during execution? Commercial Policy ▪ How can we align partner actions? © 2019 een Consulting GmbH. All rights reserved. 13
  14. 14. Core pricing concepts we’ll cover Concepts we will cover • Pricing context • Value and pricing • Market and Cost-Plus Pricing • Customer Segmentation • Offer Pricing and Choices • Price Architecture Checklist For another day • Channel Pricing • Price Analysis & Insights • Price Setting details • Price Execution • Organization, Process, Roles • Dynamic Pricing & Optimization • …and more © 2019 een Consulting GmbH. All rights reserved. 14
  15. 15. 42Wrap-up and next steps4 28Price Architecture3 15Pricing Context2 7Introduction1 DayOne Pricing Workshop © 2019 een Consulting GmbH. All rights reserved. 15
  16. 16. Strategy & Goals • What business are we really in? • What goals do we have? • What trade-offs are we willing to make? Strategy & Goals © 2019 een Consulting GmbH. All rights reserved. 16
  17. 17. What business are we in: Business Model Canvas A visual representation of your Business • See the relationships among the parts of your business • Identify hypotheses, assumptions & risks • Identify areas needing testing/confirmation © 2019 een Consulting GmbH. All rights reserved. 17
  18. 18. Offer Structure • What are we selling (offer structure)? • What is our positioning (brand image)? Offer Structure © 2019 een Consulting GmbH. All rights reserved. 18
  19. 19. Offer Structure: Core and Options • Four tiers to your product or service offering: • Core Benefits • Actual Product or Service • “Total” Product or Service (includes surrounding elements like financing, brand image etc.) • Add-On Options, usually at extra cost Core Benefit Actual Product Total Product Add-On Options © 2019 een Consulting GmbH. All rights reserved. 19
  20. 20. Competition: Next Best Alternatives Competition• What alternatives are customers considering in addition to your offers? • What are the relative advantages and barriers compared to your new innovation? © 2019 een Consulting GmbH. All rights reserved. 20
  21. 21. Competition: Next Best Alternatives • Alternative options the customer is considering • Often includes: • Direct competitor products • Indirect competitor offers that address a different mix of customer problems and opportunities • Announced or expected offers • Home-built solutions • Custom solutions • Buy nothing: fix the problem with work-arounds or live with it © 2019 een Consulting GmbH. All rights reserved. 21 Comparing Next Best Alternatives (NBA) Name Value (100 for 'base' offer) Adoption Barrier (100 for 'base' offer) Share of Available Opportunities (total=100%) Notes New Offer NBA 1 NBA 2 NBA 3 NBA 4 NBA 5 Total or Average 0% 0% 0% Rough estimates are fine…flag anything that is a wild guess and important to clarify © 2016-2019 een Consulting GmbH
  22. 22. Customers & Channels • Core Offer Customers & Channels • Which markets will we target (ideal customers)? • What value do we offer customers (value prop.)? • Which channels will we use to reach customers? © 2019 een Consulting GmbH. All rights reserved. 22
  23. 23. Customers & Channels: Ideal Customer • Define who the ideal customer is for your core offer • Who would be good customers – more difficult to win and some gaps • Who would be opportunistic customers – significant gaps and likely to go elsewhere • Which companies would you not pursue – unlikely to be successful, a distraction • For multiple distinct offers, fill out a separate template Ideal Prospect: Sales & Market top focus High win rate Good Prospect: Sales & Market secondary focus Fair win rate Opportunistic only: Not a Sales & Marketing focus Low win rate Not pursued: Sales & Marketing distraction Very low chance of success © 2019 een Consulting GmbH. All rights reserved. 23
  24. 24. Customers & Channels: Value and Barriers • Identify and rank all potential sources of value • Identify the value barriers (areas where • Assess the confidence level to identify areas that need further study © 2019 een Consulting GmbH. All rights reserved. 24
  25. 25. Healthcare Complication 1: who is the customer? © 2019 een Consulting GmbH. All rights reserved. 25 Patients Patient Organizations (NGO) Individual Patients Parents Health Care Providers (HCP) Treating Physicians (GP, Specialists) Referring Physicians Surgeons Psychologists Pharmacists Physiotherapists Nurses Medical Associations Hospitals Private / Public / Academic Medical Centers Integrated care centers / networks Payers Insurance companies Social Healthcare Organizations (e.g. Krankenkassen) Purchasing Organizations Procurement CCG / County Councils Governments HTA Bodies Policy Makers Keep Satisfied Key Players Minimal Effort Keep Informed Power High Low InterestLow High
  26. 26. Healthcare Complication 2: valuing Patient Outcomes SourceofValue Immediate Costs Direct Capital Equipment Direct Supplies Indirect Cost Savings Drugs & Medical Supplies Out-patient Treatment Hospital Treatment Long-Term Costs Direct Capital Equipment Direct Supplies Indirect Cost Savings Drugs & Medical Supplies Out-patient Treatment Hospital Treatment Patient Outcomes Length of Life Quality of Life Predictability Other value Risk Level Simplicity Reputation Loyalty • Features that improve patient outcomes • Potential to raise price but can challenge payer budgets • Can be monetized with higher price or higher share • Raises the “willing to pay” by indirect means, e.g. brand value, more reliable, option value, etc. • Can add real, significant value, but much harder estimate and price: often more effective to raise share • Costs reduced now or very soon • No impact on patient outcomes or other factors • Can be monetized by retaining some/all of costs saved or price lowered • Costs reduced in future • No impact on patient outcomes or other factors • Requires a longer-term perspective from payer to be monetized © 2019 een Consulting GmbH. All rights reserved. 26
  27. 27. Summary: any adjustments needed? • It’s normal that later activities influence earlier sections • Anything need significant adjustment based on the complete set of templates being filled out? © 2019 een Consulting GmbH. All rights reserved. 27 Offer Structure Strategy & Goals Competition Customers & Channels Pricing Architecture Insights & Analysis List & Target Setting Commercial Policy Execution
  28. 28. 42Wrap-up and next steps4 28Price Architecture3 15Pricing Context2 7Introduction1 DayOne Pricing Workshop © 2019 een Consulting GmbH. All rights reserved. 28
  29. 29. Competition • Core Offer Customers & Channels Market Drivers Strategy & Goals Internal Drivers Offer Structure Defining the Value & Price Architecture Value & Price Architecture ` Pricing Practices Insights & Analysis List & Target Setting Execution Commercial Policy © 2019 een Consulting GmbH. All rights reserved. 29
  30. 30. Price Architecture Checklist ✓ Aligned with Market & Company Price Drivers ✓ Uses Fenced Segmentation to increase value Capture ✓ Users Price Carriers that align to customer value ✓ Offers customers Choices to meet their needs ✓ Channel Incentives aligned with Channel Strategy ✓ Can be implemented Simply and Efficiently ✓ Considered Fair by customers ✓ Fits within any External Constraints © 2019 een Consulting GmbH. All rights reserved. 30
  31. 31. Three pricing approaches Competitor-oriented mark-up 2. Competitive pricing Competitive orientated Competitors & differentiation not considered Competitor prices not always optimal Not profit-optimal ? Comp. price Benefit (€) Price+ = 1. Cost-plus pricing Undifferentiated cost-plus approach Easy to use No consideration of customer & competitor data Undifferentiated approach Not profit-optimal ? Cost Margin Price+ = 3. Value-based pricing Value-based mark-ups Profit-optimal Consideration of all value drivers (customer, competitor, internal) Consistent price structure High effort Comp. price Price+ =Value drivers Value based pricing is the gold standard, but others are often relevant. © 2019 een Consulting GmbH. All rights reserved. 31
  32. 32. Balancing the 3 pricing approaches Value Pricing Cost+ Pricing Competitive Pricing  Excess supply vs. demand • Undifferentiated products • Excess supply • Low market discipline: “compete on price” • Supply/demand dynamic • Low product differentiation • Many competitors • Highly differentiated products • Significant, unique value • Low competition © 2019 een Consulting GmbH. All rights reserved. 32
  33. 33. Price Carriers: how you’ll set the price Innovative offers benefit from: • Aligning pricing to value delivery to increase value capture • Reward increased adoption of risk Price per package Price per km Price per hour Price per hectare Price per kg output Price per $m assets covered Price per year of coverage Price per $ saved Price per GB Price per kg © 2019 een Consulting GmbH. All rights reserved. 33
  34. 34. Types of Price Carriers • Products/Services delivered • Usage • Time subscription • Process output • Cost savings • Increased profits Inputs Activity Output Outcome Impact Price per package Price per km driven (e.g. tires) Time & Material Consulting Price hour of flight (engine) Price for capital equipment Price per year of use Price per $ saved Price per GB storage Price per cartridge used (printer) Price per perpetual license Price to setup Price per copy (Xerox) Fixed price project Capitation (healthcare) Price per click (online ads) Commission per $ revenue Price per user Reduction in hospital stay time (pharma) Inventory reduction (supply chain) Increasing Risk Transfer to Supplier Increasing Value Capture Potential Decreasing Supplier Control © 2019 een Consulting GmbH. All rights reserved. 34
  35. 35. Price Segmentation Introduction Segmentation is a marketing technique aimed at dividing customers/products into clusters with similar features. A good segmentation should ensure: • Distinct: Homogenous within groups and different across groups • Actionable: Fences can be created between segments (product, channels, customers) • Important: large & strategic enough to justify tailored and targeted prices & activities Why Use Segmentation? © 2019 een Consulting GmbH. All rights reserved. 35
  36. 36. Why Use Segmentation: increases profit capture! Number of customers Price Gross profit Sales increase as prices decrease Number of customers Price Gross profit One price Segmented prices Simple, but one price captures only a small part of the available profit Captures more of available gross profit but more complex and must be able to ‘fence’ segments Variable cost Variable cost Additional area is increased profit © 2019 een Consulting GmbH. All rights reserved. 36
  37. 37. Customer Segments are usually related to the pricing approach and overall strategy & goals © 2019 een Consulting GmbH. All rights reserved. 37 Value Pricing Cost+ Pricing Competitive Pricing • Use/application • Industry • Geography • Platform(s) in use • Current solution • Relationship strength • Other? • Customer size • Number of competitors • Strength of competitors • Cost-to-serve (relative to competitors) Value for End- Customer Short-Term Costs Long-Term Cost Revenues and Profits Less Tangible Value • Strategic customers • Key Opinion Leaders
  38. 38. Fences are needed to stop leakage across price segments • Product: designed/specified to support specific uses • Product Bundling: bundle products/services that meet specific needs • Contract timing: higher price for higher flexibility (e.g. duration, pre-pay) • Volume pricing: discounts for larger volumes • Channel: online, sales rep, partner • Buyer Identification: geography, other • Regulatory: seeking approval for targeted uses The best fences support customer self-segmentation with choices © 2019 een Consulting GmbH. All rights reserved. 38
  39. 39. Customer Choice Design: self-segmentation of low and high Willingness-to-Pay Giving customers choices can increase the realized price • Forces trade-offs • Anchors help raise prices • Add-on options another tool • Can reduce or eliminate negotiations © 2019 een Consulting GmbH. All rights reserved. 39 © 2019 Pipedrive
  40. 40. Customer Choice Design: Good-Better-Best levels Attribute Good Best Example Features Limited Full SaaS features Volume Limited Unlimited Mobile data minutes Service Basic High-end Warranty & Support Limited/Extra cost Full, long, included Availability Off-peak Anytime Gym access Response time Slow Fast Amazon Prime program Flexibility Low High Hotel non-changeable vs. flexible reservations Relationship Remote Close/personal Self-service vs. dedicated Account Executive © 2019 een Consulting GmbH. All rights reserved. 40 • Ideally levels build on each other • Outliers can be handled with add-on options at additional cost
  41. 41. External Constraints? • Platform licenses? • Regulations? • Cost-to-Serve? • … © 2019 een Consulting GmbH. All rights reserved. 41
  42. 42. 42Wrap-up and next steps4 28Price Architecture3 15Pricing Context2 7Introduction1 DayOne Pricing Workshop © 2019 een Consulting GmbH. All rights reserved. 42
  43. 43. Homework Fill out the Pricing Context Templates • Business Model Canvas (Value Prop & Customer Segments at a minimum) • Ideal Offer • Competition (next best alternative) • Ideal Customer • Value • Summary of Price Drivers Fill out the Price Architecture Templates • Price Balance • Price Carrier • Customer Segments • Price Choice • Next Steps (how to answer open questions and most critical assumptions) © 2019 een Consulting GmbH. All rights reserved. 43 Next time (June 11) we will review and refine your ideas
  44. 44. Thank you Ian Tidswell ian@eenconsulting.com +41 786 26 36 15

×