Businesses are finding it challenging to price innovations. This presentation highlights a value-based approach: - Pricing is central to how you communicate your value and position your offer - Value has economic and emotional aspects – both matter - Market segmentation is the foundation of your pricing strategy - Connect the value metric to the pricing metric ➔ Pricing power is important to investors

1. Karen Chiang
karen@ibbaka.com | +1 778-628-4085
Pricing for Innovation
SFU VentureLabs / Vancouver/ February 14, 2018

2. About me
http://hq.teamfit.co/how-our-skills-support-and-shape-our-career/1 I 2018 © Ibbaka Performance Consulting Inc.

3. • Whose dealing in B2B, B2C, B2G
(Business to Government) markets?
• Anyone in M2M (Machine to Machine)?
• What role?
• How many of you are responsible for
pricing?
• Early stage ventures?
A bit about us
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4. • Aspects of your company may be incomplete
• Management team may be lacking key individuals
• Product is still in development, or
• Product is not yet on the market in a commercialised form, (typically in
‘beta’)
• If commercially available, the product is generating revenues but on a
limited basis
• May have filed for patents for proprietary technologies
• Funding is transitioning from founders, friends & family
• Looking to attract funds from accelerators, angels and maybe VCs
Early stage
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5. • Pricing is central to how you communicate your value and position your
offer
• Value has economic and emotional aspects – both matter
• Market segmentation is the foundation of your pricing strategy
• Connect the value metric to the pricing metric
➔ Pricing power is important to investors
Key takeaways
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6. • Pricing is central to how you communicate your value and position your offer *
• Your pricing is part of your innovation
• Pricing changes across the product lifecycle
• Pricing is based on the value you provide to your customers
• Value has economic and emotional aspects – both matter *
• Market segmentation is the foundation of your pricing strategy
• Your data model should support your value and pricing models
• Connect the value metric to the pricing metric *
• Pricing power is important to investors *
Agenda
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7. Why Pricing Matters
Pricing is where it all comes together
How you
create value
Who you
sell to
How you
communicate
value
How you
capture value
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8. Pricing as an innovator
Example: Aerospace industry’s
innovation in pricing concept:
Power by the Hour (PBH) --
Performance-based Logistics
(PBL)
• Shared risk and incentives
between suppliers and
customers
Reference source: http://knowledge.wharton.upenn.edu/article/power-by-the-hour-can-paying-only-for-performance-redefine-how-products-are-sold-and-serviced/
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9. Pricing in the Technology Adoption Cycle
Will Not
Pay
Pay a
Premium
Innovators
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10. Pricing in the Technology Adoption Cycle
Vertical Value
Drivers
Horizontal
Value
Drivers
Precise
Segmentation
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11. Understanding value is the foundation for
• Market Segmentation
• Value-Based Pricing
• Marketing Strategy
• Value-Based Sales
Core concepts: Value
Without value
There is nothing to price
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12. • Emotional – necessary to give people the motivation to buy, without an
emotional connection the sales will not occur, emotional value increases
pricing power
• Economic – justifies the price, sets the parameters within which one can
price (business buyers do not want to pay more than the business value they
will receive
• Always relative to an alternative
Core concepts: Value is Emotional and Economic
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13. Emotional value
Maslow’s
Hierarchy
PricingPower
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14. • 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
• Reduce or avoid liability
• Resilience
Risk Reduction
• Flexibility
• Current and future choices (avoid lock in)
Value of an Option
Positive economic value drivers
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15. • The costs of using your solution that do not apply to the
next best competitive alternative
• Switching costs
• Training
Your Unique Costs
• The things that the alternative does better than your
solution, the alternatives positive value drivers
Your Shortcomings
Negative economic value drivers
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16. Value is Differentiated
Customer Needs
Your Offer Alternative
Unmet
Needs
Commodity
Your
Differentiation
Irrelevant
Irrelevant
Competitor
Differentiation
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17. • The simplest and most common form of segmentation is demographic
(or firmographic)
• Do firms of a similar size, or in a similar industry, or in the same geography all
buy in the same way?
Demographic segmentation
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18. • Lives in a castle
• Rich
• 69 Year Old
• Cares about family
Demographic Often Fails
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Ozzie Osborne Prince Charles
Same demographics, different value drivers and buying
behaviors

19. • Segmentation is the foundation of
marketing
• The goal is to connect similar customers
into groups to simplify
• Marketing
• Sales
• Support
• Pricing
Core concepts: Why Segmentation
➔ Companies in the same segment should behave
in similar ways and respond to similar value
propositions
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20. A good segmentation brings together companies that
1. Buy in the same way
2. Get value in the same way
3. Will act as reference for each other
(especially important in launching a new offer)
Core concepts: A Good Segmentation
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21. Core Concepts: Pricing Methods
• Price at a mark-up on your costs
• Use when customer has controlCost Plus
• Price at a premium or discount to a market
leader
• Use for fungible commodities
Market Based
• Price based on your differentiation value,
pricing power & pricing strategy
• Use for differentiated offers
Value Based
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22. 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
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23. Your pricing strategy needs to support your brand
Market Positioning
Brand Attributes
Value Drivers
Target Customers
Pricing Strategy
Pricing
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24. • Pricing innovation will depend on data
• 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
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25. Value metric = The unit of consumption
by which your customer gets value
Value metrics
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26. Pricing Metric = The unit of consumption
by which you charge
Pricing metric
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27. Value Metric ≈ Pricing Metric
Does your pricing metric track your value metric?
Connecting the Value and Pricing metric
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28. Tracks Value
Discriminates Segments
Makes it Easy to Buy
Enforceable
Simple
Choosing pricing metrics
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Inc.

29. “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
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30. • Pricing is where all of your critical marketing decisions come together
• Investors will assess your pricing strategy and pricing performance
Pricing matters to investors
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31. • Market Segmentation demonstrates your understanding
your market opportunity…
• Patterns of needs, attitudes, behaviors
• To identify customers who value your differentiation
and the value they will receive
• Underpins calculation of market size
• Customer Targeting shows you’ve identified your most
attractive segment
• Prioritizes your marketing investment (financial and
effort)
• Understand your customer’s buying process
Pricing matters to investors
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32. • Unique and Differentiated Value Proposition
• Determines your ability to realize your potential
earnings
• Is always relative to the next best competitive
alternative. Investors want to know that you have done
your competitive analysis
• Market Sizing
• Provides an indication of potential earnings
• Does your Total Addressable Market (TAM), Serviceable
Addressable Market (SAM), Serviceable Obtainable
Market (SOM) justify your valuation
Pricing matters to investors
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33. • Customer Traction “quantitative evidence of market
demand"
• Validation that value is being created
• Price Optimization
• Pricing is the lever to win higher profits, revenue or
market share
• Connecting to your buyers emotional and
economic needs
• The correct pricing metrics helps you
• to monitor price acceptance
• guide behavior across pricing tiers, and
• be better prepared for competitive positioning
Pricing matters to investors
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34. • Create and capture value for customers and your
investors–all stakeholder
• Pricing is where your marketing strategy gets real
• You and your customer need to agree on price to win a
sale
Create value
➔ Price to create and capture value for all
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35. 1. Figure out if you have pricing power.
• Can you raise prices?
• What can you do to increase your ability to raise prices?
2. Answer ‘Which of our customers gets the most value from our offer?’
3. Checkout www.Ibbaka.com/self-assessment
Three things to do tomorrow
Note: In Beta, only available on Chrome Desktop. We look forward to your feedback.
34 I 2018 © Ibbaka Performance Consulting Inc.

36. www.Ibbaka.com/self-assessment
➔ Note: In Beta, only available on Chrome Desktop. We look forward to your feedback.
35 I 2018 © Ibbaka Performance Consulting Inc.

37. 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
Ibbaka on Twitter
Ibbaka on LinkedIn
Website
Steven Forth
Managing Partner
steven@ibbaka.com
Karen Chiang
Managing Partner
karen@ibbaka.com
1 415 799 8326
Rashaqa Rahman
Consultant
rashaqa@ibbaka.com
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