A recent Simon-Kucher global pricing study shows that more than 80% of all companies face increasing price pressure. Pure price level reactions can hardly be the answer to this challenge – the change of the revenue / price model on the other hand can be. This presentation highlights why companies should think out-of-the-box when it comes to their price model and how, for example, subscription models and bundling can not only protect but actually improve margins.
Chris Petzoldt, Managing Director ANZ, Simon Kucher & Partners
Understanding UAE Labour Law: Key Points for Employers and Employees
Sydney Subscribed 2016: Pricing Strategies for Tomorrow
1. www.simon-kucher.com
How to win with New Price Models & Packaging
Pricing Strategies for tomorrow
Sydney, August 10th, 2016
Chris Petzoldt,
Partner, Managing Director
Oceania
Sydney office
Level 32, Northpoint Tower
100 Miller Street
North Sydney NSW 2060, Australia
Tel. +61 2 91121301
chris.petzoldt@simon-kucher.com
2. Zuora presentation 2016 - Simon-Kucher
Overview
Pricing – an increasing challenge
Capture value with New Price Models
Capture value with New Offer Strategies
Need help? Simon-Kucher can support!
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3. Zuora presentation 2016 - Simon-Kucher
Global Pricing Study; 2,200companies across the world; Source: Simon-Kucher & Partners
Simon-Kucher's Global Pricing Study 2016
report increasing price pressure82%
are in price war49%
Margin decrease per year as price
increases cannot compensate cost
increas
0.7%p
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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
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5. Zuora presentation 2016 - Simon-Kucher
Global Pricing Study; 2,200companies across the world; Source: Simon-Kucher & Partners
Top solutions companies see to cope with increasing
price pressure
Top approaches to escape oppressive market conditions*
Share of respondents
34%
37%
49%
50%
66%
Introduce new,
innovative, or
differentiated products
Change our
customers’ perception
of value and price
Improve our value
perception &
communication
Reduce our variable
or fixed costs
Improve the negotiation
skills of our sales force
Price models
Offer models
More vision than reality
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Common reason why product innovations fail….
Wrong product
development approach
Design it
Build it
Price it
Market it
leads to…
Bad design Missing benefit
Feature shock Missing audience
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7. Zuora presentation 2016 - Simon-Kucher
Overview
Pricing – an increasing challenge
Capture value with New Price Models
Capture value with New Offer Strategies
Need help? Simon-Kucher can support!
7
8. Zuora presentation 2016 - Simon-Kucher
Selecting the price model cannot be that hard – can it?
Revenue: Web-shop provider Webshop customer A
Year 1 $479.40 $28,000 (25 products)
Year 2 $479.40 $140,000 (40 products)
Year 3 $479.40 $450,000 (60 products)
Year 4 $479.40 $600,000 (63 products)
What do you think of
this price model?
Web-shop provider
Project Example
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9. Zuora presentation 2016 - Simon-Kucher
Case 1: From fixed to success based pricing
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%
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10. Zuora presentation 2016 - 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
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11. Zuora presentation 2016 - 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
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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."
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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
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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
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15. Zuora presentation 2016 - Simon-Kucher
Overview
Pricing – an increasing challenge
Capture value with New Price Models
Capture value with New Offer Strategies
Need help? Simon-Kucher can support!
15
17. Zuora presentation 2016 - 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
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Bad example: There should be a package portfolio not
an all-in
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Bad example: Packages need to differentiate on
relevant features
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?
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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)
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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
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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
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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 ...
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Identifying leaders, fillers, and killers using the
Simon-Kucher feature evaluation matrix
1
2
3
4
…
Features/modules
Simon-Kucher
Project Example
Product/feature evaluation matrix
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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 behavioral 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)
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Example impact of packaging optimisation
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
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27. Zuora presentation 2016 - Simon-Kucher
Overview
Pricing – an increasing challenge
Capture value with New Price Models
Capture value with New Offer Strategies
Need help? Simon-Kucher can support!
27
28. Zuora presentation 2016 - Simon-Kucher
Source: manager magazine, August 2011/IMB, survey among German top managers
Simon-Kucher is the world’s leading advisor in Pricing
900 employees
33 offices world-wide
Amsterdam
Barcelona
Bonn
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Cologne
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London
Luxembourg
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Francisco
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1 Simon-Kucher & Partners
2 Boston Consulting Group
3 McKinsey & Company
Best consultancies in marketing and sales*
manager magazin
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
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29. Zuora presentation 2016 - 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
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30. Zuora presentation 2016 - 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
Boral
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
Viega
Vodafone Fiji
Selected international references Local references
(AUS/NZ/Fiji)
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31. References in the subscription space
Telco
Software & othersOnline
Media
Zuora presentation 2016 - 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
…
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