day 5 afternoon - dixon, pricing and delivery
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Lead to Win
Lead to Win
Pricing and DeliveryJune 25, 2009
Fred Dixon, CEO Blindside Networks
Lead to WinJune 25, 2009
Fred’s background in sales
• Co-founded three software companies– Databeacon Inc (sold to Cognos 2004)
– OpenLava Inc
– Blindside Networks Inc
• My sales experience– Large deals (> $10k) with professional services (PS) component
– OEM sales (largest was $250k)
• I have– Raised 4.7M in venture financing
– Hired a US/Cdn sales force (VP of Sales + 4 reports)
– Sold primarily to private/public companies
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Lead to WinJune 25, 2009
Learning objectives
You will know about:• Price strategy and generic pricing approaches• Price attacks
And you will be able to:• Contribute to price decisions• Present, justify, and defend your pricing
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Lead to WinJune 25, 2009
In the beginning ...
• In the early stages, your goal is to create satisfied customers that you can use as references
• Price is a key component of a satisfied customer– Subscription based pricing
• Usually tied to consumption over time
– License based pricing• One time license + support + professional services
• Let’s break down pricing into three phases– Before the sale: Create a pricing model that makes sense
– During the sale: Justify the pricing to the customer
– After the sale: Deliver on the value at the agreed price
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Lead to WinJune 25, 2009
Pricing: The Big Picture
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Lead to WinJune 25, 2009
Research your price
• Factors that affect pricing strategy– Example
• Three generic approaches• Price to capture fair share of value• Drill down into their costs• Fit with the customer’s pricing logic• Take advantage of environmental differentiators
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Lead to WinJune 25, 2009
Factors that affect pricing strategy
Price strategy
BU’s P&L• Revenue growth• Impact of discounts• Cost structure
Competitors’ responses• Price wars• New entrants• New products
• New price strategy
Health of industry
Stage in life cycle
Organizational consensus
Value of offer relative to competitors
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Lead to WinJune 25, 2009
Example
• License• Support• Professional Services
• Example: $10k base with 15 days of PS– Year 1
– Year 2
– Year 3
(Three Generic Approaches)
20% of license/year
$1500/day
$10k + $15k + $2k = $27k
$2k
$2k
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Lead to WinJune 25, 2009
Three generic price approaches
Emerging Growth Mature Decline
Extract
• Premium price
• Differentiated offer
• Creates opportunities for rivals
Yes Yes Yes Yes
Neutral
• Price close to competition
• Prevents price wars
• Compete other than price
Yes Yes Yes Yes
Penetrate
• Low price is primary driver
• Price wars
• Low customer loyalty
• Leads to confusion
No Yes No No
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Lead to WinJune 25, 2009
Price to capture fair share of value
1. Value segment
2. Value levels
3. Segment offers
4. Financial value demonstrated
5. Price
Level1 Offer1 Value1 C1 x Value1
Level2 Offer2 Vaue2 C1 x Value1
… … … …
Leveln Offern Valuen Cn x Valuen
1. Identify targeted value segment
2. Define value levels
3. Determine offer (product, services, delivery etc.) that delivers value for each level
4. Demonstrate value each offer creates
5. Price to reflect value created
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Lead to WinJune 25, 2009
How to determine what customers are willing to pay?
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Lead to WinJune 25, 2009
Drill down into their costs
Supplier’s view of proposed solution
• Advanced HW• IP technology• System integration……
Solution to save 60% of SW budget
Financial value = Save $252 M per
year
Integrate (i) drilled down customer answer and (ii) internal view
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Supplier Question Customer Answer
What do you need? Reliable XYZ
Why? Save SW Budget
How much is SW budget? 70% of project cost
How large is average project costs?
$3 M/project
How many projects/year 200 projects/year
Lead to WinJune 25, 2009
Fit with customer’s price logic
• What each customer is willing to pay
• Relative to competitors• Combination pricing• Foot in door pricing• Transparent pricing• Cost plus
Focus on logic of approaches your customers and you use to set prices, not on absolute price numbers
Show how your price logic supports customer’s price logic
• Other approaches (not covered)• Dynamic pricing
• Variable pricing
• Auction
• Group
• Based on an index
• Regulated pricing
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Lead to WinJune 25, 2009
Take advantage of environment differentiators
Ability to price discriminate increase when:
• Markets are very different from each other
• Customers can’t resell products bought in one market into another market
• Competitors can’t undersell where prices are higher
• Cost of overseeing discriminatory pricing is low
Price discriminate based on:
• Image
• Customer segment
• Location
• Timing
• Channel
• Packaging
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Lead to WinJune 25, 2009
During the sale
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Lead to WinJune 25, 2009
Pricing during sales
• Explore your customer’s pain• Justify your price in terms of their pain• Incorporate price sensitivity• Present you price early!
– Low price sensitivity: take advantage– High price sensitivity: differentiate
• Prevent and be prepared to respond to price attacks
• Defend your price
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Lead to WinJune 25, 2009
Explore your prospect’s pain
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Manager
Director
VP $ Impact
$ Impact
$ Impact
$$$Total impact of problem =
Lead to WinJune 25, 2009
Justify your price in terms of their pain
• Focus on the current costs incurred by your customer (as opposed to your features)– You want to show that the status quo (no sale) is not an option
• If possible, describe your solution in terms of reducing their costs– Decisions are easier when it’s cost reduction rather than taking a
risk for a future benefit
• When should you talk about price?
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Lead to WinJune 25, 2009
Present your price early!
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Lead to WinJune 25, 2009
Low price sensitivity:take advantage
Customers’ price sensitivity decreases when:
• Product is perceived to be better
• Product fits well with assets bought previously
• Conditioned to buy from the supplier
• Costs and time required to search for and compare with alternatives are high
• Cost is small compared to total cost
• Cost is small relative to income
• Cost is paid by others
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Lead to WinJune 25, 2009
High price sensitivity: differentiate
• You have many opportunities to differentiate– Educate the customer based on your experience working with
other companies
– Reduce their effort to implement your solution by improving your product and project management skills
– Anticipate and solve problems (reduce risk) for the customer during planning and delivery
– Enable customers to map their position or benchmark their performance relative to others
– Makes sense of information and predict in ways that customers cannot do on their own
• Take every opportunity to strengthen the relationship– Your motto: “We will not permit you to fail”
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Lead to WinJune 25, 2009
Price attack (you or yourcompetitors)
To prevent price attacks:
• Make money for customers, suppliers and resellers
• Avoid encouraging rivals’ price attacks• Alert customers to risks of poor price
quality• Make public your intentions and
capabilities to deal with various types of price attacks:
– Low function, low convenience offer– Same function with large distributor as partner– Unbundled into high-low functionality and high-
low convenience that can be ordered online or phone
– New functionality– Discriminatory, high prices in certain places and
low in others
To respond to price attacks:
• Increase benefits of existing offer, maintain price
• Increase price and improve quality• Ignore those unlikely to gain large
market share• If discriminatory, inform customers in
both segments• Strengthen value chain, enforce laws
and patents • Offer volume discounts with bundled
prices• Reduce price• Retreat from segments and strengthen
offer in others
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Lead to WinJune 25, 2009
Defend your price
• Have three “stands” ready– They are going to squeeze you until
you stop dripping (this is a good thing).
• After three stands, if they still ask for a deal, then say
“If we do _____ would you be willing to do ______?” – For example: they agree to be a reference customer
• Do not reduce your daily rate!– Instead: provide some free days of professional services
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(*) Reprinted from http://www.flickr.com/photos/tico24/57517238/ under Creative Commons Attribution License.
*
Lead to WinJune 25, 2009
Summary
• Always rationalize your price from the customer’s perspective– Determine who is impacted by the current problem you are trying to
solve
– Drill down into the cost of the status quo
• Present your price early– Add value (from the customer’s point of view) to differentiate and
support your price
• Be ready justify and defend your price from– Price attacks, or
– Being squeezed by your customer
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Lead to WinJune 25, 2009
Pricing exercise
• Let’s try applying the pricing strategy to your opportunity
• For each opportunity1. Explain your pricing logic
2. Justify your pricing
3. Defend your pricing
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Lead to WinJune 25, 2009
After the sale
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Lead to WinJune 25, 2009
After the sale
Now it’s time to deliver on the value you promised.
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Lead to WinJune 25, 2009
Learning objectives
You will know about:• The importance of project management• Breaking down large projects into two main phases
And you will be able to:• How to manage customer expectations for delivery• Keep a project on track
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Lead to WinJune 25, 2009
Ensuring successful delivery
• Observations:1. A successful reference is created during the implementation, not
the sale
2. Most companies don’t have good project management skills
3. The more you are involved in implementation, the higher the chance this will be a success
• During delivery you can add (significant) value to justify your price now and in the future
• But wait, I’m not a project manager …
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Lead to WinJune 25, 2009
Have an implementation process
• There are lots of processes– Waterfall (good for first project with a new customer)
– Agile development (need a lot of trust)
• Goal: Deliver to customer a high-quality solution on time and within budget.
• Your process should– Clear definition of roles and responsibilities
– Clear phases of delivery with accurate milestones
• Example: Microsoft Solutions Framework (MSF)
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Lead to WinJune 25, 2009
Roles and responsibilities
• Program Manager– Delivery of solution within project constraints
• Product Management– Ensure solution matches customer needs
• User Experience– Enhanced user experience
• Development– Develop to product specifications
• Test– Release after addressing all issues
• Release Management– Smooth deployment and ongoing management
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You Lead
They Lead
They Lead
Shared
Shared
Shared
Lead to WinJune 25, 2009
Two phases
• Split the implementation process into two phases:– Phase I: Planning and design: determine what needs to be
done by whom • 25-40% of overall project effort
– Phase II: Implementation
• If you get pushback from the customer– Say: “Based on our experience, this process is the most cost-
effective way to implement this solution.”
– Analogy of building a house: No builder would is going to start building a house without the architectural plans
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Lead to WinJune 25, 2009
Phase I: Determine what needs to be done by who
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Lead to WinJune 25, 2009
Vision Scope
• Vision/Scope document (short as possible)– Identify the long-term vision
– Define expectations for first implementation (scope)• Capture how the customer measure success
– Identify people for each role
– Capture high-level requirements (attach as a spreadsheet)• Business
• User
• Functional
• Security
• Risk management– Identify risks and plan for management of them (few companies
do this themselves)
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Lead to WinJune 25, 2009
Create a project plan
• Take the requirements spreadsheet1. Add a new column (days of effort)
2. Estimate the days for each requirement
• This part is always a challenge for a company– But it’s a very important activity as your company must become
good at making time estimates ASAP
• Before you present the milestones to your customer– Build-in time for internal slippage
• If you are a day early on each milestone: You’re a hero
• If you a day late on each milestone: You are unreliable
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Lead to WinJune 25, 2009
Signoff
• Before you start phase II– The customer can add/remove features and modify the
price/timeline
– Say: “You control the costs by adding/removing features from the spreadsheet”
• Be ready to defend your time estimates
• Get signoff– E-mail is fine
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Lead to WinJune 25, 2009
Phase II: Implement the solution
• Phase II is really “follow the project plan”– Implementation
– Testing
– Delivery
• After you start Phase II– Expect the customer to request changes
– Say: “That’s a good idea, do you want us to add that to this release?”
– If so,• Always discuss costs directly (use e-mail for summaries)
• Spec and bill as a change requests (more revenue!!)
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Lead to WinJune 25, 2009
Account management
• Account management– Your project management skills ensure development remains on
track and risks are properly managed
– Hold weekly meetings and updates with the customer
• Invoicing– Invoice against milestones
– Never invoice for something that you don’t have approval for
• Your motto: “We will not permit you to fail”
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Lead to WinJune 25, 2009
Delivery summary
• Capturing the requirements, user scenarios, and specs will ensure you build what the want
• Having your own implementation process enables you to – Lower the risk for your customer
– Manage the deployment
– Protect against feature creep
– Legitimately charge for changes
– Setup for deployment of your next release
• Successful delivery = successful reference
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Lead to WinJune 25, 2009
References
• Bosworth, M.T. (1994). Solution Selling: Creating Buyers in Difficult Selling Markets, McGraw-Hill.ISBN: 978-0786303151
• Microsoft Solutions Framework 3.1 (microsoft.com)
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