TomLucke_MonitorGroup

7/23/2019 TomLucke_MonitorGroup

1/23

October 17-18, 2006 l Santa Clara, CA

The StrategicPower of Pricing

Metrics

Tom Lucke

Monitor Group


2/23

October 17-18, 2006 l Santa Clara, CA 2

Agenda

Overview: The Opportunity from Metrics

Identifying Metrics Based on Value

Screening Metrics

Supporting New Metrics

Summary


3/23


Metrics The Dimension We Price

Per K byte

Per Desktop

Per Incident

Per Server


4/23


Innovative Metrics Can Drive Growth

From number of days

To number ofconcurrent DVDs

From number of CDs

To number of songs


5/23


Inappropriate Metrics Create Barriers

Completely

out of line

Absolute

no-brainer

Fairly

priced

Not cheap

to buy

LowConcurrency HighConcurrency


6/23


The Problem and the Opportunity

PricePrice EconomicEconomicBenefitBenefit

Good metrics align price and value for your customers


7/23


Whats Wrong with this Picture?

Discount Overlaid on L ist & Actual Price by Account

0

5

10

15

20

25

30

Revenue($

millions)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Discountpe

rcentage

List Actual Discount


8/23


Why Talk About Metrics?

Opportunity from metrics is significant

Metrics dont get sufficient attention

Identifying the right metrics takes work History gets in the way

Need to adapt to changes in technology Not easy to identify the right ones


9/23


Selecting the Right Metrics

Identify potential metrics by understandingeconomic value

Screen potential metrics for operational

feasibility and strategic impact

Explain and support the newmetrics in the market


10/23


What Creates Value for Customers?

Your UniqueValue Delivery

Price of

Next Best

Competitive

Alternative

Costs Unique to

Doing Business with

You

Appropriate

Metrics Can

Capture a Share

of This Value

PositivePositiveDifferentiation ValueDifferentiation Value

CompetitiveCompetitiveReference ValueReference Value

NegativeDifferentiation Value

TotalEconomic

Value


11/23


How Does Value Vary by Segment?

High

Low

Value

DDB CCA

Segment Size

Price

CC DD

Price

Price

Price


12/23


Identifying Potential Metrics

UnderstandUnderstandBusinessBusiness

ModelsModels

Map ValueMap Value

DriversDrivers

BrainstormBrainstorm

MetricsMetrics

Groupcustomers withfundamentallydifferenteconomics

Value accruesdifferentlybased onmodel

Systematicallydefine points ofeconomicleverage

Focus on areasof greatestimpact tocustomers

Link valuedrivers,features andKPIs

Use this l ist asa source forpotentialmetrics


13/23


Understand Business Models

Manufacturing

Operationally

Focused

Product

Focused

SolutionProvider

DownstreamServices

Service

Focused

IndustrySpecialist

ComponentProducer

ProductInnovator

Low Cost

Customer

Focused

Example: Operationalsoftware formanufacturers

Impact is very differentbased on the economicprofile of the company

Separating businessmodels helped usunderstandHow value was

createdWhy this varied

12% 2% 1% 4% 5% 2%

R&D Spending (% of Revenue)


14/23


Map Value Drivers

Drivers of Value For

Telecom Companies

Increase Revenue Reduce CostImprove Asset

Efficiency

Additional ShareAdditional Revenue

from Existing

Customers

First To Market

Increased Customer

Satisfaction

Decrease Direct

Revenue Leakage

Improve Service

Availability

Increase Sales

ConversionIncreased Selling

Lower IT and Process

Management Costs

Reduce Network

Operating Cost

Reduce Sales and

Marketing Cost

Reduce Customer

Service Cost

Reduce Billing,

Collection and Bad

Debt Cost

Lower Capital

Expenditures

Reduced Inventory

Reduce Inventory

Carrying Cost

Reduce A/R Carrying

Cost

Reduce direct network

operating costs

Reduce the cost of

purchased materials

Reduce the cost of

provisioning,

installation and service

Drivers of Value For

Telecom Companies

Increase Revenue Reduce CostImprove Asset

Efficiency

Additional ShareAdditional Revenue

from Existing

Customers

First To Market

Increased Customer

Satisfaction

Decrease Direct

Revenue Leakage

Improve Service

Availability

Increase Sales

ConversionIncreased Selling

Lower IT and Process

Management Costs

Reduce Network

Operating Cost

Reduce Sales and

Marketing Cost

Reduce Customer

Service Cost

Reduce Billing,

Collection and Bad

Debt Cost

Lower Capital

Expenditures

Reduced Inventory

Reduce Inventory

Carrying Cost

Reduce A/R Carrying

Cost

Reduce direct network

operating costs

Reduce the cost of

purchased materials

Reduce the cost of

provisioning,

installation and service

Example: Networkmanagement softwarefor telecom services

companies

Value driver map let usidentify where value

was created Comprehensive and

systematic view

Jumping off point forpotential metrics


15/23


Brainstorm Metrics

Link product features and value drivers Identify key dimensions along which value varies

Dont constrain yourself to conventional metrics at this point

Network

headcount

Equipment

inventory Network operatingcosts

Network

asset base

Number of

projects


16/23




Screen potential metrics for operationalfeasibi lity and strategic impact



17/23


Screening Metrics

Correlates with Value Across Segments

Measurable and Enforceable

Compatible with Buying Process

Favorable Positioning Against Competition

Potential Metrics

Aligns with Channel(s) Objectives

11

2

3

44

55

Build businesscase and select

final metric

Build businessBuild businesscase and selectcase and select

final metricfinal metric


18/23


Estimating Economic Value

Note:

Source:

$0.40

$0.75

$0.45

$0.65

$0.85

$3.15

$0.10

$0.05

NBCA More Calls to

Existing

Automation

New Simple

Automation

Opportunities

Few er

Defections

Additional

Complex

Automated

Fulfillment

Managed

Service

App

Development

Economic Value

Economic

Value

(Dollars

Per Call)

Premium PackageDifferential Value= $2.75 (per call)


19/23


Look at Value Across Segments

High Complexity

(many servers)

Low Complexity

(fewer servers)

Example: Infrastructure Software

ActivityHigh Low

Value


20/23


Operational and Strategic Screens

Correlates with Value Across Segments

Measurable and Enforceable

Compatible with Buying Process

Favorable Positioning Against Competition

Potential Metrics

Aligns with Channel(s) Objectives

11

2

3

44

55

Build businesscase and select

final metric

Build businessBuild businesscase and selectcase and select

final metricfinal metric


21/23




Screen potential metrics for operationalfeasibi lity and strategic impact



22/23


Transitioning from Traditional Metrics

ProductTraditional

MetricValue-based

Metric

ManufacturingSoftware

$ / seat$ / schedulableproduction unit

StorageManagement

Software

$ / server$ / Tb of data

movement

Call CenterHosted Software

$ / minute$ / call

processed

Financial

AnalysisSoftware

$ / year $ / click

Set price levels basedon value; check

against current pricing Test with customers

and sales

Craft the valuemessage and rationalefor metrics

Develop tools toexplain the value


23/23


Why Revisit Metrics? Good Metrics . . .

Effectively communicate the way a product

creates value

Simplify customer decision-making

Reduce the length of the sales cycle

Reduce the need for ad hoc discounting

Open up new market opportunities

Increase overall profitability

TomLucke_MonitorGroup

Documents

Transcript of TomLucke_MonitorGroup