Pricing and Licensing Strategies for Growth
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Pricing and Licensing Strategies For GrowthIn the Cloud and on the Ground
Jim GeismanSoftware Pricing Partners, Inc.
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IntroductionSoftware Pricing Partners
•Unique focus since 1987– Pricing and business models– Software-based offerings– Vendor-side, B2B clients
•Practice areas– Value-Driven Pricing– Value-Based Selling– Strategic Discounting
•Project results – Enhance value from products & services – Improve financial performance– Increase sales effectiveness
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This Morning
•Why “good” pricing and licensing matters•How licensing and pricing landscape is changing•Some things you may need to do
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Why Customers Buy
Offering Does what is neededWorks in my situation
Competition Offering is good valuePreferable to known alternatives
Decision-makingAcceptable riskEconomics, TCOPerceived value
BuyingFunding availableISV is trustworthyPainless process
ChannelResponsiveConvenientReliable
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Getting Customers to Buy
•License Delivery Model– Entitlement– Fulfillment– Systems– Integration
•Pricing Model– Value metric– Packaging and licensing– Scheduled discounts– List prices– “Deal” prices
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Getting-Paid-Fairly Processes
Deliverables
Financials
PriceDetailsDeal Pricing
List Prices
Scheduled Discounts
Packaging & Licensing
Value Metric
Entitlement
Fulfill
OrderEntry
Invoice
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Pricing and License Delivery ModelsImpact on Why Customers Buy
Offering Does what is neededWorks in my situation
Competition Offering is good valuePreferable to known alternatives
Decision-makingAcceptable riskEconomics, TCOPerceived value
BuyingFunding availableISV is trustworthyPainless process
ChannelResponsiveConvenientReliable
Pricing
ModelDeliv
ery
Model
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Topics
•Why Customers Buy
•Trends and Vendor Impact
•Pricing Models
•Summary / Q&A
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•Web is everywhere
•Virtualization increasing
•Emerging revenue models
•Commoditization continues
Trends and Vendor ImpactMajor Trends
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•Web is everywhere– More web apps– B2C influencing B2B – Customer expectations
•Virtualization increasing
•Emerging revenue models
•Commoditization continues
•Simple pricing •Bite-sized packaging•Usability influences value•Easy to try / buy / use
Trends and Vendor ImpactWeb Everywhere
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Trends and Vendor ImpactVirtualization Increasing
•Web is everywhere
•Virtualization increasing– Use is accelerating– Hardware less important– Clouds-in-clouds
•Emerging revenue models
•Commoditization continues
•App tracking harder•Hardware-based metrics harder to use•Usage data available•Hosted model more popular
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•Web is everywhere
•Virtualization increasing
•Emerging revenue models– Perpetual under fire– Subscription rising– Slow ramp-up
•Commoditization continues
•Payment options•Pay for actual use•Pricing “latency”•Lower price points
Trends and Vendor ImpactRevenue Models
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Trends and Vendor ImpactCommoditization Continues
•Web is everywhere
•Virtualization increasing
•Emerging revenue models
•Commoditization continues– Low entry cost – Tech availability– Short lifecycles
•Increased competition•More me-too products•Agility is critical•Less room for error
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Trends and Vendor ImpactImpact
Economics, TCOPerceived valueDecision-making
Smaller chunksOn-demand, as neededOffering
Web is keyLess outside salesChannel
More self-serviceEasy to try and scaleBuying
Price-focusedEven more featuresCompetition
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Trends and Vendor ImpactBuild Strong Delivery Model
License Delivery Model Requirements•Track packaging and features •Manage multiple products•Create and manage editions •Multiple fulfillment models•Customer self-service •Ease-of-administration•Ability to change rapidly•Financial and billing integration
Economics, TCOPerceived valueDecision-making
Smaller chunksOn-demand, as neededOffering
Web is keyLess outside salesChannel
More self-serviceEasy to try and scaleBuying
Price-focusedEven more featuresCompetition
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Trends and Vendor ImpactBuild Strong Pricing Model
Pricing Model Requirements•Focus on overall “offering”•Charge for value created•Simple packaging•Discounting framework•Price levels in line with value•Policy-driven discounts•Multiple payment options
Economics, TCOPerceived valueDecision-making
Smaller chunksOn-demand, as neededOffering
Web is keyLess outside salesChannel
More self-serviceEasy to try and scaleBuying
Price-focusedEven more featuresCompetition
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Topics
•Why Customers Buy
•Trends and Vendor Impact
•Pricing Model
•Summary / Q&A
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Many Pricing Models
FreemiumFreemium
Perpetual, subscriptionPerpetual, subscription
MultiMulti--tier packagestier packages
PerPer--user, peruser, per--clickclick
Full customFull custom
CPU powerCPU power
Flat rateFlat rate
99 cent app99 cent app
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Many Pricing Models Elements
FreemiumFreemium
Perpetual, subscriptionPerpetual, subscription
MultiMulti--tier packagestier packages
PerPer--user, peruser, per--clickclick
Full customFull custom
CPU powerCPU power
99 cent app99 cent app
Flat rateFlat ratePriceDetails
Deal Pricing
List Prices
Scheduled Discounts
Packaging & Licensing
Value Metric
X
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Pricing Model
PriceDetailsDeal Pricing
List Prices
Scheduled Discounts
Packaging & Licensing
Value Metric
List Prices
Packaging & Licensing
Value Metric
PriceStructure
PriceDetails
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Developing a Pricing Model - Structure Value Metric
•Scale with value delivered•Relate to customer business•Uniform across products•Easy to estimate•Easy to measure, monitor use•Unambiguous
Focus on overall “offering”
Multiple payment options
Policy-driven discounts
Price levels in line with value
Discounting framework
Simple packaging
Charge for value created
ValueMetric
PriceDetails
Deal Pricing
List Prices
Scheduled Discounts
Packaging & Licensing
Value Metric
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Metric Example
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Metric Example
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Developing a Pricing Model - Structure Licensing & Packaging
•Make choices easy, obvious•“Reasonable” value steps•Peg to use cases, segments•Smooth upgrade / upsell path•Payment equivalence
Focus on overall “offering”
Multiple payment options
Policy-driven discounts
Price levels in line with value
Discounting framework
Simple packaging
Charge for value created
Licensing & Packaging
PriceDetails
Deal Pricing
List Prices
Scheduled Discounts
Packaging & Licensing
Value Metric
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Package for Use / Value
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Developing a Pricing Model - Structure Scheduled Discounts
•Standard discounts•Qualified customers get discounts•Focused on customer behavior•Logical
Focus on overall “offering”
Multiple payment options
Policy-driven discounts
Price levels in line with value
Discounting framework
Simple packaging
Charge for value created
ScheduledDiscounts
PriceDetails
Deal Pricing
List Prices
Scheduled Discounts
Packaging & Licensing
Value Metric
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Scheduled Discounts
•Introductory– Focus on new product
•New customer– Attract new accounts
•Bundle– Increase transaction value
•Upgrade– Trade-up, upsell
•Loyalty– Reduce churn
•Segment focused– Industry, customer type
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Developing a Pricing Model - Details List Prices
•Economic value delivered drives price levels•Competition, perception a moderating influence•Covering costs is a sanity check•Price points, packaging, discounting must fit together
Focus on overall “offering”
Multiple payment options
Policy-driven discounts
Price levels in line with value
Discounting framework
Simple packaging
Charge for value created
ListPrices
PriceDetails
Deal Pricing
List Prices
Scheduled Discounts
Packaging & Licensing
Value Metric
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List Prices and Steps
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Developing a Pricing Model - Details Deal Pricing
•Ad hoc / negotiated + scheduled•Couple with sales comp•Develop policies to standardize responses•Negotiation capability and capacity
Focus on overall “offering”
Multiple payment options
Policy-driven discounts
Price levels in line with value
Discounting framework
Simple packaging
Charge for value created
DealPrices
PriceDetails
Deal Pricing
List Prices
Scheduled Discounts
Packaging & Licensing
Value Metric
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Inconsistent Deal Pricing
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Topics
•Why Customers Buy
•Trends and Vendor Impact
•Pricing Models
•Summary / Q&A
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SummaryAlign Processes AND Systems
Deliverables
Financials
PriceDetailsDeal Pricing
List Prices
Scheduled Discounts
Packaging & Licensing
Value Metric
Entitlement
Fulfill
OrderEntry
Invoice
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AcquireCustomers
Visibility
Improveproduct
UpsellMore
ExpandUser Base
GenerateMargin
SatisfyCustomers
AttractiveOffering
FinanceGrowth
PriceStructure
PriceDetails
SummaryPricing Model Must Fit Business Model
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SummaryCommon Issues•License delivery and pricing models
– Key to success– Influences growth rate– Affects cash flow
•Hard to develop, change, administer– Plan, do, improve– A process…
…Not an event•Friction points
– Longer sales cycle• Aggravate discounts
– Slow / inaccurate fulfillment• Low customer satisfaction
– Inefficient operations• Financial impact
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SummaryRespond to Market Trends
Economics, TCOPerceived valueDecision-making
Smaller chunksOn-demand, as neededOffering
Web is keyLess outside salesChannel
More self-serviceEasy to try and scaleBuying
Price-focusedEven more featuresCompetition