Price workshop day one

DayOne Pricing Workshop
Basel, 7th May 2019

Goals for the day
• Review some pricing basics
• Review pricing drivers
• Identify pricing options
• Assign next steps (HOMEWORK!)

Introductions
• Name and Company
• What is your Core Value Proposition?
• What is the core target market(s)?
• What is included in the offer?
• How will you price the offer?
• What are your top 2-3 questions on pricing?
• Maximum 3 minutes each!

Focus Organization Location
10
Upper Cumberworth Primary
Scissett Middle School
20
30
40
50
Physics
Software
Pricing
Business
General
Education
0
Shelley High School
Follicular
Retreat
My Journey
© 2019 een Consulting GmbH. All rights reserved. 4

Helping B2B companies increase profits through
better pricing
• Training via hands-on workshops
• Innovation pricing framework
• Price strategy
• Maturity diagnostic
• Coaching
• Pricing systems guidance
Innosuisse
Swiss Innovation Agency

42Wrap-up and next steps4
28Price Architecture3
15Pricing Context2
7Introduction1

15Pricing Context2
7Introduction1

Why spend time on pricing?
"Pricing is the moment of truth –
all of marketing strategy comes to
focus on the pricing decision.”
- Raymond Corey, Harvard Business School

The key elements of successful pricing
Deliver value
Communicate
value
Create value
Extract value
VALUE DELIVERY VALUE CAPTURE
Price
Offer:
Products & Services
BE TARGETED
BE DIFFERENT
FORCE
TRADE-OFFS
Pricing
Essentials

How come so many companies struggle to price well…?
• Complex topic requiring cross-functional collaboration
(marketing, sales, finance, development)
• Companies “don’t know what good looks like”
• Value of products and services to customers & stakeholders
not well understood
• Pricing just happens, rather than being designed
• Few tools & systems support pricing and only
used inconsistently
• Multiple operational challenges, including no feedback loop

The MedTech adds even more complexity
• Strong regulatory requirements differ by country & evolve slowly
• Dominant government funding increases scrutiny
• Short product lifecycles: organizational and learning impact of
frequent product changes
• Multiple important but fragmented stakeholders with
‘agency’ complexity
• Complex ethical implications from pricing
Getting pricing right is not always easy,
but it is always important!

Remember…
"Customers don't buy products, they
buy the benefits that these products
and their suppliers offer to them."
- Peter Drucker, Management Guru
Customers buy based on value even if you,
don’t price and sell based on value!

Pricing Landscape
Value & Price Architecture
▪ How do we value & price our products and services?`
Pricing Practices
Competition
▪ What are the customer’s
alternatives & competitive
pressures?
• Core Offer
Customers &
Channels
▪ Which market and market
segments will we target?
▪ Which channels will we use to
reach customers?
Market Drivers
Strategy & Goals
▪ What are our strategy, business
model & goals?
Internal Drivers
Offer Structure
▪ What product and service offers
and options will we sell?
Insights & Analysis
▪ What must we know to make robust decisions?
List & Target Setting
▪ What value do we deliver to customers?
▪ What share of the value we create can
we expect to capture?
Execution
▪ How can we minimize pricing leakage
during execution?
Commercial Policy
▪ How can we align partner actions?

Core pricing concepts we’ll cover
Concepts we will cover
• Pricing context
• Value and pricing
• Market and Cost-Plus Pricing
• Customer Segmentation
• Offer Pricing and Choices
• Price Architecture Checklist
For another day
• Channel Pricing
• Price Analysis & Insights
• Price Setting details
• Price Execution
• Organization, Process, Roles
• Dynamic Pricing & Optimization
• …and more

15Pricing Context2
7Introduction1

Strategy & Goals
• What business are we really in?
• What goals do we have?
• What trade-offs are we willing to make?
Strategy & Goals

What business are we in: Business Model Canvas
A visual representation of your Business
• See the relationships among the parts of
your business
• Identify hypotheses, assumptions & risks
• Identify areas needing testing/confirmation

Offer Structure
• What are we selling (offer structure)?
• What is our positioning (brand image)?
Offer Structure

Offer Structure: Core and Options
• Four tiers to your product or service offering:
• Core Benefits
• Actual Product or Service
• “Total” Product or Service (includes
surrounding elements like financing, brand
image etc.)
• Add-On Options, usually at extra cost
Core Benefit
Actual Product
Total Product
Add-On Options

Competition: Next Best Alternatives
Competition• What alternatives are customers considering in
addition to your offers?
• What are the relative advantages and barriers
compared to your new innovation?

Competition: Next Best Alternatives
• Alternative options the customer is considering
• Often includes:
• Direct competitor products
• Indirect competitor offers that address a different
mix of customer problems and opportunities
• Announced or expected offers
• Home-built solutions
• Custom solutions
• Buy nothing: fix the problem with work-arounds
or live with it
Comparing Next Best
Alternatives (NBA) Name
Value
(100 for 'base' offer)
Adoption Barrier
(100 for 'base' offer)
Share of Available
Opportunities
(total=100%) Notes
New Offer
NBA 1
NBA 2
NBA 3
NBA 4
NBA 5
Total or Average 0% 0% 0%
Rough estimates are fine…flag anything that is a wild guess and important to clarify
© 2016-2019 een Consulting GmbH

Customers & Channels
• Core Offer
Customers &
Channels
• Which markets will we target (ideal customers)?
• What value do we offer customers (value prop.)?
• Which channels will we use to reach customers?

Customers & Channels: Ideal Customer
• Define who the ideal customer is for your
core offer
• Who would be good customers – more
difficult to win and some gaps
• Who would be opportunistic customers –
significant gaps and likely to go elsewhere
• Which companies would you not pursue –
unlikely to be successful, a distraction
• For multiple distinct offers, fill out a
separate template
Ideal Prospect:
Sales & Market top focus
High win rate
Good Prospect:
Sales & Market secondary focus
Fair win rate
Opportunistic only:
Not a Sales & Marketing focus
Low win rate
Not pursued:
Sales & Marketing distraction
Very low chance of success

Customers & Channels: Value and Barriers
• Identify and rank all potential sources of value
• Identify the value barriers (areas where
• Assess the confidence level to identify areas
that need further study

Healthcare Complication 1: who is the customer?
Patients
Patient Organizations (NGO)
Individual Patients
Parents
Health Care Providers (HCP)
Treating Physicians (GP, Specialists)
Referring Physicians
Surgeons
Psychologists
Pharmacists
Physiotherapists
Nurses
Medical Associations
Hospitals
Private / Public / Academic Medical Centers
Integrated care centers / networks
Payers
Insurance companies
Social Healthcare Organizations (e.g. Krankenkassen)
Purchasing Organizations
Procurement
CCG / County Councils
Governments
HTA Bodies
Policy Makers
Keep Satisfied Key Players
Minimal Effort Keep Informed
Power
High
Low
InterestLow High

Healthcare Complication 2: valuing Patient Outcomes
SourceofValue
Immediate
Costs
Direct Capital
Equipment
Direct Supplies
Indirect Cost
Savings
Drugs & Medical
Supplies
Out-patient
Treatment
Hospital
Treatment
Long-Term
Costs
Direct Capital
Equipment
Direct Supplies
Indirect Cost
Savings
Drugs & Medical
Supplies
Out-patient
Treatment
Hospital
Treatment
Patient
Outcomes
Length of Life
Quality of Life
Predictability
Other value
Risk Level
Simplicity
Reputation
Loyalty
• Features that improve patient outcomes
• Potential to raise price but can challenge payer budgets
• Can be monetized with higher price or higher share
• Raises the “willing to pay” by indirect means, e.g. brand value, more
reliable, option value, etc.
• Can add real, significant value, but much harder estimate and price:
often more effective to raise share
• Costs reduced now or very soon
• No impact on patient outcomes or other factors
• Can be monetized by retaining some/all of costs saved or price lowered
• Costs reduced in future
• No impact on patient outcomes or other factors
• Requires a longer-term perspective from payer to be monetized

Summary: any adjustments needed?
• It’s normal that later activities influence
earlier sections
• Anything need significant adjustment
based on the complete set of templates
being filled out?
Offer Structure
Strategy & Goals Competition
Customers & Channels
Pricing Architecture
Insights & Analysis
Commercial Policy
Execution

15Pricing Context2
7Introduction1

Competition
• Core Offer
Customers &
Channels
Market Drivers
Strategy & Goals
Internal Drivers
Offer Structure
Defining the Value & Price Architecture
Value & Price Architecture
`
Pricing Practices
Insights & Analysis
Execution
Commercial Policy

Price Architecture Checklist
✓ Aligned with Market & Company Price Drivers
✓ Uses Fenced Segmentation to increase value Capture
✓ Users Price Carriers that align to customer value
✓ Offers customers Choices to meet their needs
✓ Channel Incentives aligned with Channel Strategy
✓ Can be implemented Simply and Efficiently
✓ Considered Fair by customers
✓ Fits within any External Constraints

Three pricing approaches
Competitor-oriented mark-up
2. Competitive pricing
Competitive orientated
Competitors & differentiation not
considered
Competitor prices not always optimal
Not profit-optimal
?
Comp. price Benefit (€) Price+ =
1. Cost-plus pricing
Undifferentiated
cost-plus approach
Easy to use
No consideration of customer &
competitor data
Undifferentiated approach
Not profit-optimal
?
Cost Margin Price+ =
3. Value-based pricing
Value-based mark-ups
Profit-optimal
Consideration of all value drivers
(customer, competitor, internal)
Consistent price structure
High effort
Comp.
price
Price+ =Value drivers
Value based pricing is the gold standard, but others are often relevant.

Balancing the 3 pricing approaches
Value
Pricing
Cost+
Pricing
Competitive
Pricing
 Excess supply vs. demand
• Undifferentiated products
• Excess supply
• Low market discipline:
“compete on price”
• Supply/demand dynamic
• Low product differentiation
• Many competitors
• Highly differentiated products
• Significant, unique value
• Low competition

Price Carriers: how you’ll set the price
Innovative offers benefit from:
• Aligning pricing to value delivery to
increase value capture
• Reward increased adoption of risk
Price per package
Price per km
Price per hour
Price per hectare
Price per kg output
Price per $m assets covered
Price per year of coverage
Price per $ saved
Price per GB
Price per kg

Types of Price Carriers
• Products/Services
delivered
• Usage
• Time subscription
• Process output • Cost savings • Increased profits
Inputs Activity Output Outcome Impact
Price per
package
Price per km driven
(e.g. tires)
Time & Material
Consulting
Price hour of
flight (engine)
Price for capital
equipment
Price per year
of use
Price per $
saved
Price per GB storage
Price per cartridge
used (printer)
Price per perpetual
license
Price to setup
Price per copy
(Xerox)
Fixed price
project
Capitation (healthcare)
Price per click
(online ads)
Commission
per $ revenue
Price per user
Reduction in hospital
stay time (pharma)
Inventory reduction
(supply chain)
Increasing Risk Transfer to Supplier
Increasing Value Capture Potential
Decreasing Supplier Control

Price Segmentation Introduction
Segmentation is a marketing
technique aimed at dividing
customers/products into clusters
with similar features.
A good segmentation should ensure:
• Distinct: Homogenous within
groups and different across groups
• Actionable: Fences can be created
between segments (product,
channels, customers)
• Important: large & strategic
enough to justify tailored and
targeted prices & activities
Why Use Segmentation?

Why Use Segmentation: increases profit capture!
Number of customers
Price
Gross
profit
Sales increase as
prices decrease
Number of customers
Price
Gross
profit
One price Segmented prices
Simple, but one price captures only
a small part of the available profit
Captures more of available gross
profit but more complex and must
be able to ‘fence’ segments
Variable cost Variable cost
Additional area is
increased profit

Customer Segments are usually related to the pricing
approach and overall strategy & goals
Value
Pricing
Cost+
Pricing
Competitive
Pricing
• Use/application
• Industry
• Geography
• Platform(s) in use
• Current solution
• Relationship strength
• Other?
• Customer size
• Number of competitors
• Strength of competitors
• Cost-to-serve
(relative to competitors)
Value for End-
Customer
Short-Term Costs
Long-Term Cost
Revenues and
Profits
Less Tangible Value
• Strategic customers
• Key Opinion Leaders

Fences are needed to stop leakage across
price segments
• Product: designed/specified to support specific uses
• Product Bundling: bundle products/services
that meet specific needs
• Contract timing: higher price for higher
flexibility (e.g. duration, pre-pay)
• Volume pricing: discounts for larger volumes
• Channel: online, sales rep, partner
• Buyer Identification: geography, other
• Regulatory: seeking approval for targeted uses
The best fences support customer
self-segmentation with choices

Customer Choice Design: self-segmentation of low
and high Willingness-to-Pay
Giving customers choices can increase the
realized price
• Forces trade-offs
• Anchors help raise prices
• Add-on options another tool
• Can reduce or eliminate negotiations
© 2019 Pipedrive

Customer Choice Design: Good-Better-Best levels
Attribute Good Best Example
Features Limited Full SaaS features
Volume Limited Unlimited Mobile data minutes
Service Basic High-end
Warranty & Support Limited/Extra cost Full, long, included
Availability Off-peak Anytime Gym access
Response time Slow Fast Amazon Prime program
Flexibility Low High Hotel non-changeable vs.
flexible reservations
Relationship Remote Close/personal Self-service vs. dedicated
Account Executive
• Ideally levels build on
each other
• Outliers can be handled
with add-on options at
additional cost

External Constraints?
• Platform licenses?
• Regulations?
• Cost-to-Serve?
• …

15Pricing Context2
7Introduction1

Homework
Fill out the Pricing Context Templates
• Business Model Canvas (Value Prop &
Customer Segments at a minimum)
• Ideal Offer
• Competition (next best alternative)
• Ideal Customer
• Value
• Summary of Price Drivers
Fill out the Price Architecture Templates
• Price Balance
• Price Carrier
• Customer Segments
• Price Choice
• Next Steps (how to answer open
questions and most critical assumptions)
Next time (June 11) we will review and refine your ideas

Thank you
Ian Tidswell
ian@eenconsulting.com
+41 786 26 36 15

Price workshop day one

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