Pricing should be a critical issue for the CEO as it is one of the most powerful levers in the business. Successful pricing also depends on clear goal and strategy alignment, which is the role of the CEO. This presentation was made in Seattle to a group of business leaders interested in improving pricing leadership.

1. May 17, 2018
Steven Forth
steven@ibbaka.com | +1 604 763 7397
Pricing and the CEO

2. • Hooked on early-stage innovation
(Founder of Thoughtshare, Agreement Express,
LeveragePoint, TeamFit and now Ibbaka)
• Got into pricing while at Monitor-Deloitte
and working with Tom Nagle
(Author of The Strategy and Tactics of Pricing)
• Advise companies on go-to-market
strategy with a focus on pricing
(Everything from Fortune 500 to Pre Revenue Startups)
• Blend Design Thinking & Pricing Strategy
because pricing requires design
A bit about me
Steven Forth
Managing Partner - Ibbaka
steven@ibbaka.co
+1 604 763 7397
@StevenForth
TeamFit Skill Profile

3. • Are you in B2B, B2C, B2G?
Anyone in M2M? (Machine to Machine)
• Who in you organization is responsible
for pricing
• Goals
• Strategy
• Execution
• What role do you currently play in
pricing?
A bit about us
Strategy Execution
Goals

4. • How to lead pricing
• Who should ‘own’ pricing
• How to set pricing
• The key questions to ask
Themes for this morning

5. Why Pricing?
Pricing is where it all comes together
How you
create value
Who you
sell to
How you
communicate
value
How you
capture value

6. The innovation cycle
Create
Communicate
CaptureDeliver
Understand
Pricing
VALUE

7. What is your product development process?
Product Cost Price Customer? Value??
Customer Value Price Cost Product
Common Process
Value-Based Process

8. • Establish a common language and
concepts (help people to use them
consistently)
• Set clear goals
• Ask questions
• Give people space to execute
(and make mistakes)
How to lead pricing

9. • Pricing methods
• Value – emotional and economic
• Price – packaging, model, price setting
Value Metric connects to Pricing Metric
• Strategy - that will deliver your goals
• Tactics – that will execute strategy
A common language

10. Common Language - Pricing methods
• Use when customer has controlCost Plus
• Use for fungible commoditiesMarket Based
• Use for differentiated offersValue Based

11. Emotional
Economic
Always relative to an alternative
Common Language - What is value?

12. Emotional value
Maslow’s
Hierarchy
PricingPower

13. Common Language - Economic value
Price of
Alternative
Your Positive Value
Drivers
Your Negative
Value Drivers

14. Common Language - Economic value
Price of
Alternative
Your Positive Value
Drivers
Your Negative
Value Drivers
Differentiation
Value
Economic
Value

15. Economic value
Price of
Alternative
Your Positive Value
Drivers
Your Negative
Value Drivers
Differentiation
Value
Economic
Value
Normal
Price
Range

16. Common Language - What is differentiation?
Customer Needs
Your Offer Alternative
Unmet
Needs
Commodity
Your
Differentiation
Irrelevant
Competitor
Differentiation

17. Common Language - What is differentiation?
Customer Needs
Your Offer Alternative
Unmet
Needs
Commodity
Your
Differentiation
Irrelevant
Competitor
Differentiation
Baseline
Positive Value Negative Value

18. • Grow market
• Improve pipeline conversions and velocity
Increased Revenues
• Improve efficiency
• Reduce rework
Reduced Operating
Expenses
• Defer Investment
• Extend asset life
Reduced Capital Expenses
• Accelerate cash collection
• Reduce inventory
Reduced Operating Capital
• Switching costs
• Training
Your Unique Costs
• Compared to the alternativeYour Shortcomings
Economic value drivers

19. • For B2B Pricing
• Understand how you impact your customer’s
P&L
• Understand how your customer impacts its
customers’ P&L
Understand your customers P&L

20. Penetrate
Price low, grow market share, win first
mover advantage
Common Language - Pricing strategies
Market following
Price relative to an alternative
Premium
Price to communicate and capture
differentiated value

21. Your pricing strategy needs to support your brand
Market Positioning
Brand Attributes
Value Drivers
Target Customers
Pricing Strategy
Pricing

22. “The single most important decision in
evaluating a business is pricing power.
If you've got the power to
raise prices without losing business to a
competitor, you've got a very good
business. And if you have to have a
prayer session before raising
the price by 10 percent, then you've got
a terrible business.”
Warren Buffet
Common Language - Pricing power

23. Common Language - Putting the pieces together
Price of
Alternative
Your Positive Value
Drivers
Your Negative
Value Drivers
Positive
- Brand
- Transfer Pricing
- …
Negative
- Risk
- Switching costs
- - …

24. Common Language - Putting the pieces together
Price of
Alternative
Your Positive Value
Drivers
Your Negative
Value Drivers
Positive
- Brand
- Transfer Pricing
- …
Negative
- Risk
- Switching costs
- - …
Premium
Market Following
Penetration

25. Common Language - SegmentTargetPostion
Pricing is part of positioning

26. Connecting pricing to value
GE
Jet Engines
Land
Fill
Pay per
Click
???
How will you do this?

27. Tracks Value
Discriminates Segments
Makes it Easy to Buy
Enforceable
Simple
Common Language – Pricing Metrics
Pricing Metric

28. Who should lead pricing
Changes over the product lifecycle
• Should be led by whoever is closest to the customer
• This tends to be product management at first and then migrate to product
marketing or sales over time
Collaborative effort
• Needs the involvement of executive leadership, finance, marketing sales and
in some cases operations (when pricing is used to manage load or keep
facilities at capacity)

29. Who should lead pricing – product lifecycle
Early Market
Product
Bowling Alley
Direct Sales
Tornado
Marketing
Main Street
Collaborative

30. Who should lead pricing - collaboration
Product
List Price
Sales Management
Discount policy
Sales Operations
Contract
Tactical
Sales
Rebates & Terms
Finance
From Tim Smith at
Wiglaf Pricing

31. How to set price
1. Set your goals
2. Understand the value
3. Choose where to play
4. Design
1. Monitor and adapt

32. How to Set Price - Pricing goals
1. Grow the market
2. Grow market share
3. Grow revenue
4. Improve gross profit
5. Price for unit economics (Lifetime Value of Customer, Customer Acquisition Costs)
6. Price for capacity utilization

33. How to Set Price - Understand the value
• Where do you have differentiation value
• Relative to which alternatives
• For which customer segment
• Remember that value is emotional and economic

34. How to Set Price - Choose targets
• Segment market on how customers get value
• A good segment is one where potential customers get value in the same
way and buy in the same way
• Do not price for every segment
• Target segments where you offer exceptional differentiated value
• Also consider customer acquisition costs and cost to serve the segment
• Sequence targeting so that one segment sets up the next

35. How to Set Price - Design pricing
• Choose pricing metrics that track value metrics
• Design to support
• Your goals (market growth, market share, revenue, etc.)
• Your target segment
• To differentiate segments
• In tiered price designs
• Understand the role of each tier
(Is it to upsell or to better cover the demand curve?)

36. How to Set Price - Set levels
• Set price levels to capture a
reasonable amount of
differentiated value depending
on your strategy
• Avoid excessive discounting
but plan for some discounting
(preferably 5-10% but up to
30% in some industries)
• Prepare for some form of
dynamic or performance-
based pricing in the next
decade

37. How to Set Price - Monitor and evolve
• Pricing changes
• You are playing chess (competitors will
respond to your pricing)
• Customer needs change
• New alternatives enter the market
• You may not get it right the first time
• Collect data to see how you are doing and
if the system is performing as designed
• Get better at prediction

38. 1. Are we in alignment on pricing goals? It is the CEO’s job to set the goals.
2. What is our pricing strategy?
3. How are prices set?
4. What is our value metric? (or value metrics)
5. How does our price track the value we deliver?
6. Which customers get the most value from our products and services?
7. How and when do we give discounts?
8. What data are we tracking to improve our pricing?
9. Do we lead with value in our sales process?
Questions the CEO should ask

39. Benchmarking – Self Assessment Tool
Simple self assessment tool
Generates a custom report
Try having different people
in your company take this
and then compare results
https://www.ibbaka.com/se
lf-assessment

40. Pricing
Innovation
Cloud
IoT
AI
Pricing innovation

41. • Predictive value – Can you predict how much value a customer will get?
• Behavioral pricing – Apply behavioral economics and cognitive science to
pricing
• Dynamic bundling – Built bundles in real time based on value and cost
• Dynamic pricing – Price is generated in real time
• M2M Auctions – Price is negotiated between bots
What the future looks like

42. Understand Value
• Research and validate value drivers for all market participants
• In multisided platforms, map interactions between market participants (see next slide)
Segment the Market and Target Customers
• Find segments that get value in the same way and buy in the same way
• Target segments that get the most value with a reasonable CAC (Customer Acquisition Cost)
Design a Pricing Model
• Identify all of the value metrics (the measures of how users get value)
• Use these to design the pricing metric (how users are charged) and the pricing architecture
Set and Monitor Prices and Performance
• Set prices to optimize for company goals (market share, revenue, profit, cash flow)
• Establish monitoring system to ensure continuous improvement
The best approach

43. • Pricing is based on the value you provide to your customer
• Value has economic and emotional aspects – both matter
• Market segmentation is the foundation of your pricing strategy
• Pricing is a place to innovate
• Connect the value metric and pricing metric
Key takeaways

44. 1. Figure out if you have pricing power.
• Can you raise prices?
• What can you do to increase your ability to raise prices?
2. Ask ‘What role does each of my tiers play?’
• Does each tier have a well defined role?
• Is it actually fulfilling that role?
3. Answer ‘Which of our customers gets the most value from our offer?’
Three Things to Do Tomorrow

45. Discussion
• Pricing challenges? Let’s discuss.
• What are the risks of pricing innovation?
• Are you collecting the data you need? Do you have the rights to use the data
the way you want to?

46. Contact Us
Pricing consultancy and technology company
built by experienced entrepreneurs
We understand innovation because we live it
Our passion is improving product launch and in
market success through better strategic pricing
and execution
Understand the larger picture of segmentation,
targeting, value modeling, value propositions
and pricing architecture
Steven Forth
Managing Partner
steven@ibbaka.co
+1 604 763 7397
TeamFit Skill Profile
Karen Chiang
Managing Partner
karen@ibbaka.co
+1 778 628-4085
TeamFit Skill Profile
Ibbaka on Twitter
Ibbaka on LinkedIn
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