Siebel Case Study:Pricing Strategies in Software Tania T. Goldszmidt

VP, WW Operations, Sales

Siebel Systems, Inc.

October 18, 2004

High Tech: Software License Pricing Drivers

Multi-tier Multi-tier Order Order

ManagementManagement

Key Solution Components

• Intelligent Product Recommendations

• Complex Pricing and Configuration

• Entitlement Verification and Tracking

• Collaborative Order Management

• Streamlined Quote to Contract Process

• Simplified Self-service Purchasing

Pricing primarily has to be: Scalable Flexible Enforceable

Pricing then has to: Reflect Value (Communications, perspectives, end to

end solutions)

Incorporate feedback from Analysis

Include services bundling

Reflect software industry trends: Driving recurring revenue streams: subscription,

maintenance

Utility based: How many times system is accessed or used vs number of users

Serve different segments: Enterprise & Small and Medium Businesses

On Premise License & On Demand Subscriptions

Support Services & Custom Solutions Development

Pricing Governance: People, Process, and Technology

People

Process

Technology

= Optimal Pricing & Ease of doing business

Methods& Practices

A Customer-Centric Pricing Process

CustomerCustomer

Price Price ExecutionExecution

Price Price EnforcementEnforcement

Price Price PlanningPlanning

Price Price AdministrationAdministration

Determine prices based on customers’ sensitivity to prices from win/loss history and discount analysis

Introduce new products and price lists, and update and maintain pricing data.

Deploy price and discount information to support price negotiations and transactions in a cost effective manner.

Enforce contractual pricing policies, discount authorities through approval processing and routing Design compensation for pricing incentives and discount penalties

Phase 1: Focusing on Execution and Administration

Objective: Develop base infrastructure to drive operational efficiencies

Redesign and Deploy New Lead-Quote-Order Management System

Develop Analytics Datamart

Create a predictable fulfillment model

Help build, validate & deploy best in class product configurations

Create low touch, highly integrated applications that increase employee productivity rates

Ensure effective communication & handoffs between different business units involved in creation and management of price lists, deal approvals and orders

New Integrated Order Management Infrastructure

Product & Catalog Product & Catalog ManagementManagement

Product Selection

Product Configuration

Define Offerings

Deploy Catalogs

Order Lifecycle ManagementOrder Lifecycle Management

Quotes

OrdersCustomer Assets

Contracts

PricingPricingManagementManagement

Price Administration

Price Planning

Price Execution

Price Enforcement

Customer InformationCustomer Information

Account Opportunity Contact

Mobile

Call Center

Web

Partners

Retail POS

Pricing Analytics

Customer Surveys

Industry Analysis

Contract Systems

Billing Systems

Results:

Operational Efficiencies Lower order costs by reducing quote and order errors by 35%

Reduce order cycle time up to 37%

Reduce customer inquiries & collections by 50-80%

Created a consistent repeatable set of business processes

Deployed a low touch, fully integrated set of applications

Increased accuracy & completeness of order data by 90%

Improved visibility into customer asset base & deployments.

Identification of up-sell & cross sell opportunities

Increase orders processed per employee by 15%

Manage order process with 47% less staff

Phase 2: Focus on Pricing Enforcement and Analysis

Objective: Design Organizational Structures and Pricing Metrics

Drive Top Management attention to pricing and discounting

Increase visibility across deals, customers, products, markets

Develop feedback mechanisms for better pricing planning

Align incentives to drive improved pricing performance

Facilitate negotiation process and improve customer relations

Pricing Enforcement Challenges

3. Wide Variability in Discounting• Large Discounts on Small Deals• Wide Discount range on similar sized deals

0

10

20

30

40

50

60

70

80

100 1,000 10,000 100,000 1,000,000

D

isco

unt

from

list

in %

Deal size in Dollars

New Deal Approval Process

Siebel Siebel Pricing Pricing

CommitteeCommittee

Sales Sales PresidentPresident

Any Pricing + Special Business Terms on All Any Pricing + Special Business Terms on All Deals to be sent to Sales-Deal ApprovalsDeals to be sent to Sales-Deal Approvals

Siebel Siebel FinanceFinance

Siebel Global Siebel Global Services ServicesLegalLegal

CEO

The Siebel Pricing The Siebel Pricing Committee will Committee will

request CEO Approvalrequest CEO Approval

Siebel Siebel Technical Technical ServicesServices

Products/ Products/ EngineeringEngineering

Sales OperationsSales Operations

- - Review validated quotes Review validated quotes

- Review business terms- Review business terms- Review discount approval authorityReview discount approval authority- Review existing contract termsReview existing contract terms- Review potential revenue recognition issuesReview potential revenue recognition issues

DiscountDiscountand otherand otherTermsTerms

BusinessBusinessTermsTerms

RevenueRevenueRecognitionRecognitionRevenueRevenueRecognitionRecognition

MaintenanceMaintenanceTermsTerms

ServicesServicesTermsTerms

Product andProduct andDevelopmentDevelopmentCommitmentsCommitments

ContractContractTermsTerms

Sales Team

VPVP

RMRM

DMDM

If no additional approvals are required, Sales-If no additional approvals are required, Sales-Deal Approvals will approve the transactionDeal Approvals will approve the transaction

Alignment across Business Units

Recommended Pricing Envelopes

Discount

Deal Size

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%$0 $100K $500K $1.0M $2.5M $5.0M $10M $15M

• Opty #1•Opty #2

• Opty #3

• Opty #4

• Opty #5• • Opty #8Opty #6

• Opty #7

• Opty #9•Opty #10

• Opty #11• Opty #12Consistent Pricing Practices

• Provides discount guidelines by Industry, deal size, region

• Based on historical transactions analysis

• Aligned with Sales Compensation

•Discount Ranges

•Comp Plan Matrix

• Revised Quarterly

• Effectively used to set customer expectations

Results:

Continuous drive toward more consistent discounting practices Deal Size vs Overall Discount for Q1'03 - Q3'04

10

100

1,000

10,000

100,000

1,000,000

10,000,000

100,000,000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Discount

Net

Dea

l Siz

e

Case Study: Packaging and Pricing for the SMB market

Have Infrastructure

Have Discipline

Have Analytics

….discovered deep discounts and customer satisfaction issues in Mid Market offering

Phase 3: Address Value Proposition in Key Segments

Need to understand and address different customer segments

Need to understand customer key buying factors and provide appropriate deployment and pricing options

Need to understand value and rethink how to package your products

Do not forget about the complete solution: service bundles

Understanding the Customer’s key buying factors

Feedback from MME Customer Interviews--10/03-6/04 “Siebel is too expensive for SMBs”

MME was 2X cost competitors Siebel often tried to sell SMBs enterprise product at 4X cost of competitors SMBs pay enterprise prices for maintenance

“Siebel does not understand SMB needs” MME strategy of “less functionality for smaller customers” was patronizing Siebel offered no vertical solutions for the SMB Siebel assumed SMB sales cycle was simpler an attempted to close business over

phone

“Siebel makes SMBs “compete” with enterprises for attention” No separate service and support channel No separate sales org

“Siebel is too complex” SMB customers reported spending 4X-6X more on Siebel implementations than on

competitors1

Product bundles forced customers to buy more CRM than they needed

1TCO for MSB CRM Software, Gartner, Feb ‘04

Customer Sat Survey Supports Interview Findings

Scalability of Product .5

TAM Effectiveness .7

End User Education .7

Sales Org Effectiveness .8

Technical Training Effectiveness .8

Reseller and End User Education .8

Software Reliability 1.2

Consulting Services Effectiveness 1.3

Ease of Doing Business 1.3

Ease of System Administration 1.3

Ongoing Tech Support Effectiveness 1.4

Product Effectiveness 1.7

Functionality Meets Your Business Needs 1.7

Ease of Integration With Other Vendors 1.8

Ease of Using Product on Day-To-Day Basis 1.8

Speed of Product 1.8

Documentation 1.8

Ease of Product Configuration 1.9

Product Meets expectations 2.0

Ease of Product Installation 2.0

Price Of Product At Time of Install 3.3

Q1 ’04 MME Customer Satisfaction Scores

Gap between “Product Effectiveness” and “Product Meets Expectations” reflect disatisfaction with “striped down product’ strategy

Customers frequently expressed concern regarding price of software and installation

Many SMB customers underestimated complexity of install and attempted without an SI

MME Customers Want More Value

Analyze Competitors Offering and Capabilities

SiebelSiebel ProfessionalProfessional

SalesLogix

MSCRM

Onyx

Pivotal

SF.com

Fie

ld S

ales

Insi

de S

ales

Par

tne

r M

anag

eme

nt

E-C

omm

erc

e

Cus

tom

er S

ervi

ce

Fie

ld S

ervi

ce

Dat

a C

lean

sin

g

CR

M A

naly

tics

Con

tent

Mgm

t.

Cam

pai

gn M

gm

t.

Good enough functionality

Light Features or features delivered through partnerships

Has yet to demonstrate functionality

Source: A Feature Comparison of CRM Suites for MSBS, Wendy Close, Gartner, August 8, 2004

Siebel Delivers CRM for Everyone

CRM for any type of userCRM for any type of user

CRM for any size OrganizationCRM for any size Organization

CRM for any industryCRM for any industry

CRM any way users preferCRM any way users prefer

Enabling companies to deliver seamless and superior customer experiences by extending CRM to everyone in their organizations and partner ecosystems

Hosted CRM

On premise CRM

Hybrid Hosted/On Premise

Enterprises

SMBs

Workgroups

27 Industry Solutions

1000’s of business processes

Universal Application Network

Power User

Casual Users

Mobile Users

Key Insights from Analysis

Depth in Focused AreasDepth in Focused Areas

Sophisticated requirements

SMB deployment is narrower in scope than enterprise

Usability drives ROI

Trusted AdviceTrusted Advice

Local presence

Domain Expertise

Track record for Success

Thin margins

Limited cash supply

Limited Room For ErrorLimited Room For Error

5 M SMBs have diverse needs

Solutions must grow with business

Diversity Requires FlexibilityDiversity Requires Flexibility

CRM Professional Edition—Exactly What SMBs Need

Enabling companies to deliver seamless and superior customer experiences by extending CRM to small and medium sized businesses and partner ecosystems

Expanded ProductExpanded Product

35 new or enhanced modules

Horizontal, FINS, CME, Life Sci. and Consumer Goods products

80% improvement in task completion

Flexible PackagingFlexible Packaging

Create customer bundles

Purchase additional modules a la carte as needs evolve

Premiere PartnershipsPremiere Partnerships

Leading SMB resellers in U.S.

12 Point Certification Process

CRM Domain Expertise

Horizontal-$995/user

Vertical-$1095/user

$54K Implementation

Pre-negotiated financing rates

Affordable PricingAffordable Pricing

Flexible Packaging Allows SMBs to Create Custom CRM Bundles

Option 5Option 5Customer Choice

Option 6Option 6Customer Choice

Option 3Option 3Customer Choice

Option 4Option 4Customer Choice

Option 1Option 1Customer Choice

Option 2Option 2Customer Choice

Base ApplicationBase Application

Build the Application You Need Start with a Sales, Service, Marketing or

Call Center base Choose 6-8 additional modules at no

extra cost

Solution Grows with Business Purchase additional functionality a la

carte Select from over 50 modules

Affordable Pricing Options Address SMB Purchasing Preferences

Single payment at time of purchase

Maintenance and support purchased separately$995 per user$995 per user

$54K implementation

Up to 200 users

6 week implementation

Fixed Fee Fixed Fee ImplementationImplementation

Access to Siebel’s pre-negotiated rates

Loan durations range from 24-36 months

Convenience of dealing with a single vendor

Partnerships with premiere financing companies

FinancingFinancing

$100K Software and Implementation for 50 users

Software Cost

50 users 100 users

Fixed Price Implementation

$50,000

$54,000

Total Cost

Cost Per User

$104,000

$2,100

$100,000

$54,000

$154,000

$1,540

$54K Fixed Priced Implementation Up to 200 Users Sales, Service, Call Center Vanilla configuration with some

allowance for customization

Deployed in 6 Weeks Project Charter and requirements

definition Design and configuration Data Migration Testing User and Administration setup

Cost Scenarios

Siebel 7.7 CRM Professional Edition Delivers Unique Value That No Competitor Can Match

Deep product functionality and usability drives adoption and reduces costs associated with customization

Packaging that offers flexibility and expandability to simplify deployment and adoption and to grow with the business

Competitive pricing with no hidden costs

A partner network with the deepest CRM domain expertise to ensure customers get what they want, when they need it, for the price they can pay

The solution that addresses evolving business needs through migration to Enterprise and deployment in a hybrid hosted environment

Siebel Case Study: Tania T. GoldszmidtVP, WW Operations, Sales

Siebel Systems, Inc.

October 18, 2004