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Approaching pricing in the shifting world of Software

Freemium Meetup February 13, 2013

The evolving world of Software

XaaS Services represented 11.2% of the $237.3B of the software industry revenues for the 100 largest companies in the industry, in 2011

9 technology macrotrends fueling growth, innovation and complexity across software firms and their customers these trends are impacting licensing, pricing and delivery models across the industry
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Customers want flexibility, predictability and interoperability in the license agreements with software vendors

Buy as You like

Subscription License
Traditional License

Rental License Financing the purchase

Deploy as You like

On Premise
Public Cloud

Private Cloud Mobile /Tablet Versions

Pay as You like

Flat Fee Per User

Per page Views Dynamic Pricing

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Various new revenue models are emerging to meet customer demands

these Emerging models exist with the Traditional model and also as Hybrid models

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Pricing is based on your firms goals, business models and the other participants in your immediate market
Bounds
Max and Lowest Reasonable Prices

Competition
Competitive Pricing

Strategy
Business/Segment Goals and Strategy

Financials
Delivering Revenue and Profit Targets

Max Customer Perceived Value

Gain Market Share

Sell Solution Value

Maximize Revenue

Price level

High

Competitors

Hit Profit Targets

Low

Costs

Penetrate Markets
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PwCs Pricing Framework 4 key elements

For each framework component, focus on the elements that drive pricing maturity and impact financial results

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Tools like the Price Waterfall help reduce leakages as you analyze the myriad of business models

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Maximizing economic benefits from pricing

Price Optimization and Management projects typically result in the core set of pricing improvements ranging from changing the pricing models to establishing price floors and discount management policies
Adopt new pricing model for each customer segment, reflecting customer value drivers and cost-to-serve
Adjust prices to reflect market conditions (i.e., competitor pricing and customer willingness to pay) Establish price floors, eliminating pricing outliers

Exit unprofitable customers

Driving Increased Profit

Address pricing cannibalization by establishing price separation in best, better and best product lines

Identify up-sell opportunities

Take out/reduce unnecessary discounts and promotions

Charge for or eliminate cost-to-serve elements (e.g., freight, samples) Take out unnecessary credits and rebates
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Pricing maturity model used to assess your position and to determine path to next level of pricing excellence
Process Organization Technology
Complete pricing platform integrating price setting, price optimization, price management, market and customer data Fully automated pricing data management

Data and Analytics

Regularly performed and systems-based advanced analytics Systematic management of pricing performance against set targets Regular tracking of metrics covering strategic and tactical activities Full understanding of true costs to serve

Pricing capability maturity model

High

Holistic Pricing Management

Well-defined, fully Fully integrated function integrated, and to optimize pricing standardized pricing throughout the value processes including price chain optimization Formal customer Proactive pricing strategy analytics and market and execution, defined intelligence function workflow to manage price Regular training on exceptions product value and Systematic and governed negotiation skills cross-functional coordination in pricing Well-defined but poorly integrated pricing processes Reactive pricing strategy and execution, price exceptions are managed ad hoc Limited cross-functional coordination in pricing Centralized price strategy and execution function Centralized deal management Ad hoc training on product value and negotiation skills

Tactical Pricing Management

Price management system has been implemented Pricing optimization system integrated with price management Limited automation of pricing data management

Regularly performed standard analytics using Excel Sporadic measurement of pricing performance Regular tracking of pricing metrics focused on nonstrategic activities Limited understanding of true costs to serve Rudimentary and ad hoc analytics Limited tracking of pricing metrics Minimal opportunities to analyze meaningful data including true costs to serve

Pricing Capability

Informal Pricing Management

High Low

No formal or standardized processes in place Lack of clarity on pricing strategy Lack of cross-functional coordination in pricing

Business value

No centralized price strategy and execution function Decentralized deal management Minimal training on product value and negotiation skills

Excel-based pricing data management Underutilization of available tools

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Thank you!

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, [insert legal name of the PwC firm], its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2012 PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers LLP, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

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