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18.09.2015
Value-based pricing —  the holy grail of pricing strategy for companies seeking to optimize customer revenue contribution — is not an easy undertaking.
But what if software executives had access to the customer and product data that makes such insight possible? SaaS products have access to usage data typically not available for on-premises installations, which gives hosted products unique advantages when it comes to incorporating customer value into the pricing model. These insights can in turn be used to refine pricing models and customer segmentation strategies to more closely align with the value received from using the software.
Conventional SaaS pricing methods have typically failed to leverage the wealth of information available to help determine optimal pricing. Other approaches typically involve establishing an initial price point based on an assessment of the total cost of ownership of a competitive SaaS or on-premises solution.
As a vendor of SaaS products, there are multiple data sources you can leverage to help align segmentation and pricing with the way that the product is used — and therefore, valued — by the user. Successfully executing on a data-driven pricing strategy requires technology sophistication to capture and manage large data sets, analytical expertise for insight development and a flexible management and operating model to translate the insights into specific pricing changes. Dhaval Moogimane is a partner at the Waterstone Management Group, a strategy consulting firm that works exclusively with investors and management teams of technology companies. Dhaval focuses on helping clients capitalize on disruptive technology trends to create and scale new platform products and solutions.
While Big Data rules the front end of this type of pricing strategy having a billing system that is flexible enough to handle the multiple pricing dimensions is the only way to realize the promise of this type of strategy.
Your comment has been submitted for review and will be posted to this article as soon as it is approved. Keep informed on all that's going on in the software, cloud and mobile industries by signing up for SandHill's weekly newsletter. Paid games are also monetized via clickable (tappable) ad sponsorships embedded within the games. Bill Philips, President, oversees the general management, including game development, of MNG.
One of the key challenges to executing a value-based strategy is the wall that often exists between marketing and sales.
We've seen marketers create models like this in as little as 15 minutes, based on the collective intelligence and expertise of the group.  Although the output is not as detailed or precise as what would be created in a full-blown consulting engagement, it provides the essential outline of a value conversation almost immediately. Using this EVE model, the marketing team can quickly identify key elements of a value story (positive value drivers - green bars) and potential challenges (negative value drivers - red bars).
It explains the principle of a pricing pyramid, goes into the pricing objectives, pricing strategy, and pricing model while going through examples of pricing strategies. Founded in 2006, Demand Metric is one of the world’s leading purveyor of templates and tool kits for marketing executives, with companies such as Toshiba, VeriSign or Kraft Foods as clients. In a world of ever increasing competitiveness, it is imperative that Managers maintain effective control of their companies.
This dissertation is dedicated to the research and philosophies of a committed group of people from all the corners of the world who serve on the International Organization for Standardization working group and are assigned the responsibility of developing an international standard for the Economics of Quality.
Their approach to the formidable task of developing an international standard has been exemplary in that, although we had differing view points, we were always able to achieve consensus. This dissertation can be used to understand the concepts of the International Standard which should be published in 1996. In the preparation of this dissertation, I would like to extend my thanks and gratitude to the following people for their support. To SABS who invited me to represent South Africa at ISO on the subject of Economic Effects of Total Quality Management. To my wife Rencia, Gerhard, Johann and Liezl who are proof of a family that shows love and understanding.
Economics of quality has been with us for many years and the concept of prevention, appraisal and failure costs has been taught to students for many years.
This chapter is devoted to the technical aspects of working groups as this is not commonly known in industry and it is important that industry should know where International Standards originate from and to give their support to national institutions such as the South African Bureau of Standards, British Standards Institution etc..
As ISO 9000 started being adopted by many countries a need for more specific guidelines on the various elements of ISO 9000 developed. It is usual that the working group be reasonably limited in size, as too many members can compromise the effectiveness of the group. Participating members are the experts appointed to develop the standard, whilst observing members are exactly as to what their status is defined.
These administrative powers of the convener are essential in order to ensure continuance of group activities.
The primary duty of a working group is the development or systematic review of International Standards. The progress of the working group is made known through periodical progress reports to the technical committee.
Figure 2 depicts the sequence of project stages through which the technical work is developed and gives the name of the document associated with each project stage.
A working group project can take several years and therefore there is a time limit of two years for a working draft, a committee draft within five years and publication within seven years.
Not all of industry is aware of the fact that ISO quality management system documentation consists of more than just ISO 9000-1 to 4, 9001, 9002, 9003 and 9004-1 to 4. ISO 9000 [2] family of documents of which ISO 9001, [3] 9002 [4] and 9003 [5] are mandatory standards to be complied with if companies wish to achieve accreditation under the listing scheme. At present there is only one ISO standard that has been published as a national standard, ISO 9000-1 [1].
There is only one standard and that is ISO 8402 - Quality management and quality assurance - Vocabulary [8]. This chapter was devoted to giving the reader an understanding of how International Standards are developed and why ISO standards are so important and necessary for international trade. Industry has tried to look at the concept of economics of quality for many years as a cost reduction tool and have applied the PAF model (Prevention, Appraisal and Failure costs) with very limited effect.
The need for an International Standard from ISO was proposed with the above concepts in mind. During the meeting at the Surfers Paradise in Australia, The working group refined the introduction of the document. This International Standard is intended to provide guidance to persons carrying responsibility for acquiring and fulfilling customer requirements.
In every organization the economics of Total Quality Management will also cover the aspects of "Grade". This introduction and scope has been carefully worded by the working group to ensure that users become aware of the fact that quality is everybody's business and can be applied by all whether in industry or social services.
Cost of conformity - Cost to fulfill all of the stated and implied needs of customers in the absence of failure of the existing process.
Good examples are government or local institutions that render social service to the communities that they serve. Total quality management must not be seen as a tool but rather as a philosophy that underscores the corporate strategy of all organizations. Total quality management extends beyond the scope of quality control, quality assurance, quality management and total quality.
Teams are essential within an organization as they are the most suitable vehicle within which problem solving and implementation can be achieved.
Total quality management emphasizes that everybody in the organization must have the tools and a system to appraise their own performance, act upon the results, review and continuously improve what they are responsible for. Internal markets addresses the establishment or creation of a market (Customer) responsive organizational culture. Leadership in terms of total quality management must be inherent in quality committed senior management in order to ensure that the principles of total quality management are continuously implemented. Therefore it can be said that total quality management means managing the whole organization and extend relationships with customers and suppliers. In addition to reducing internal costs, a comprehensive improvement program can increase the gains of an organization.
Satisfier factors are expected conditions or events which are proportional in their effects on customer satisfaction.


Delighter factors are any practices, product features, services or attributes which are very positive to the customer when experienced but were not expected or specified.
The author disagrees with the use of the words; dissatisfier, satisfier and delighter as they are phrases developed by an individual and therefore advocates that individual's philosophy. To achieve customer satisfaction it is important to have some form of customer supplier alliance with the motivation lying not necessarily in the short term, but in the projected long-term benefits derived from the skills of the supplier and the strengths of the customer. It will be noted that the above criteria is part of the principles of total quality management and the element of trust in a customer-supplier alliance is a significant factor. By adapting a tree diagram, [1] as shown in figure 6, to the organization the main potential benefits can be shown hence enabling the most effective use of resources.
The person responsible for the process, and those operating it, should own the measures and the costs. Total quality management became an attainable objective when the people who were the driving force moved into senior management positions.
To have a positive attitude means there is a good culture and this is the foundation of a successful total quality management program.
The employee must be able to make decisions with regard to the quality of work, working conditions, better means of performing the task. Measurement and actions should be meaningful and support the strategy and objectives of the organization. In order to manage the improvement, the establishment of goals and measurable actions are required to allow management to measure, analyze and take effective action.
Pricing is one of the many factors which influence business success and yet is one of the most neglected when it comes to matters such as market sensitivity. Therefore an organization should develop a value-orientated approach to its pricing policy.
A price objective of return on revenue in marketing is desirable when the organization is the low-cost producer in a stable market and the profit on sales is high and the market can absorb the volume at the price established. To maintain price stability in the market is the desire of all organizations as it eliminates the need to review price schedules at short intervals. As pricing objectives in marketing, market prestige and image are normally associated with products that have many intangible benefits associated with them. To meet the competitive price is a popular strategy in marketing where the product is in a price sensitive market or where it is viewed as a commodity. Implementation of a system to measure quality related activities must fall within the scope of a quality policy that has been written and committed to by the highest level of management.
The objective of measurements should be to improve new and existing products or services, gain new customers, defining customer needs and to improve the total quality management system of the organization. The measurement system that will be discussed now is the basis upon which all economics of quality systems should be developed. It is recommended that cost data be extracted from the existing financial control system, complimented by operational data from internal and external sources. Activity Bases Costing is a relatively new concept that fits in well with the philosophy of this dissertation and the reader should take this system into serious consideration. Depending on the size of the organization, each department or section will have several processes within. The identified process is isolated as a discrete set of activities and given a name or code. Responsibility for the administration of the system should be shared with the accounting and quality functions.
As stated you should supply top management with only the bottom line figures of the management report.
It is suggested that the economics of quality review should become part of your monthly or quarterly quality management meeting.
The investment in information could be considered as a once off cost that is expended in developing the system.
The objective of information to management is to monitor the performance of key performance indicators and to manage any deviation from plan. Are there any indicators of business performance or change which could be better quantified? Therefore to meet the information requirements that relate to performance measurement it must be decided as to what has to be measured, how, when and what values should be attached to the measurements. Volume measurements are normally in terms of units processed or inputs of raw material, electricity or gas. Accuracy measurements can be related to quality, rejects, errors or level of conformance to requirements.
Monetary measurements are usually expressed as costs per unit, total costs or profits before or after tax.
While this problem has existed for some time, the emergence of third-party marketplaces (like Amazon and eBay) has changed the game by lowering the barrier to entry. A retailer buys the product from a product company for $50 per unit and sells it at their store for MSRP at $100.
DNA Response has developed a distribution strategy that properly manages distribution channels to give pricing power back to product companies and maximize availability. It may seem that the responsibility of price control would fall under price but the purpose of a price strategy is to state what the price should be based on market forces. The basic premise of a distribution strategy is to make a product available to the company’s target market. Selective distribution means your company selects several retailers to serve a specific region.
Disintermediation simply means you remove intermediaries from your distribution channels, which is essential to a distribution strategy because intermediaries exponentially increase the difficulty of price control. In a direct-to-consumer channel, a company sets the price directly and can change it whenever they want.
Third-party-marketplaces like Amazon and eBay are a hybrid of direct-to-consumer and retail because multiple sellers can sell the same product in the same retail outlet. When a company sells product to an intermediary without an enforceable contract, that intermediary can resell the product to anyone at whatever price they please. If your company does not have existing relationships with retailers, there are some major advantages to hiring a distributor but your company must be highly selective.
Even with the tightest distribution strategy leaks are inevitable and they appear from many sources. Product serialization is the practice of printing or stamping a unique number on every unit of your products. Your company will regain the cost of product serialization by protecting your margins and saving you from the effort of inventory audits. With the selective distribution model, your company or a single licensed vendor will be listing your product on marketplaces so all other offers represent a leak in distribution.
Price and distribution monitoring and enforcement are not sufficient to establish price control.
We provide selling services so your product company can maximize sales, monitor pricing, and help remove unauthorized sellers that are hurting your margins and brand. A combination of product usage data, customer feedback and transaction data stored within the application can be used to derive valuable insights around product usage and value. Subscription prices for SaaS products are often set based on a planned three- or five-year return of the license and maintenance revenue of their on-premises counterpart. While these strategies take into account factors such as cost, competitive and substitute price points, none of these approaches get at the true value of the service being provided to the customer.
We categorize those data sources and provide examples on how the data can be leveraged in the table below. Additionally, Apurba has 10 years of operational experience in product development and marketing.
Our team is comprised of two unique individuals who have a solid background in mobile communications and marketing.
Prior to forming the company, he was Vice President of Products at a major wireless telecommunications provider for 5 years.


This wall can be broken down using an eWorking solution that encourages rapid iteration and collaboration by marketing and sales around an easy-to-use visual value model.  Take for example, this model created by a chemical company for a steel mini-mill customer to demonstrate the economic value of a new steel additive using the Economic Value Estimation or EVE methodology. Even an initial, "back of the envelope" analysis can be used to develop hypothesis that can be validated and refined with input from sales and in conversations with clients. But as long as the customer accepts the logic of the value driver, they are engaged in a true value discussion with the sales team.  At that point it doesn't matter if the accepted number is $15 or $5, the real point is that the customer has "proof" that the additive provides differentiated value that will justify its price.
Refining their products year after year, they bring highest industry standards toolkits to its 25,000 member strong base. It must be stressed again that this dissertation must not be used as a standard, but rather as a complementary document. P J Barnard of UCAR France, who during his time at EMSA advocated the philosophy of continuous education and improvement of people. EMSA has since changed its financial system to a new system that gives a better picture of actual costs and has resulted in significant cost savings. When was the last time your team struck a deal with a major retailer for the wholesale price they set out to get?
It is now relatively easy for anyone to list their product on a prominent retail website for any price they like with minimal overhead. A few customers complain about the price on Amazon and the retailer is forced to sell the product for $75. A complete marketing strategy defines the product, price, place, and promotion of a product.
Due to the vicious pricing cycle perpetuated by online marketplaces, a modern distribution strategy must also protect margins for consumer goods companies by maintaining control over retail prices. The channels with the least intermediaries are direct-to-consumer channels such as a company website, phone sales, third-party marketplaces, and DRTV landing pages.
The company is also directly responsible for the product and brand information published in the channel.
When a company directly sells their products through a marketplace, they can control pricing and product information completely.
When there are multiple intermediaries in a channel, like a distributor and a retailer, it becomes very difficult to ensure that intermediaries further down the channel will follow pricing guidelines since your company does not have a contract or direct relationship with the retailers.
A product company sells to retailers with a contract in place where the retailer agrees to follow price guidelines and only resell the product to consumers.
To effectively control pricing, your distributor must fully understand your strategy and be willing to enforce it with you. If a company sells your product online under a different name, would you be able to determine who it is? A retailer liquidates inventory, a counterfeiter lists products on Alibaba, a promotions manager runs an unauthorized sale, a fraudster takes advantage of your payment plan, returned units aren’t properly refurbished or destroyed, a small-scale seller buys an 18 pack and resells units individually, and the list goes on. With an inventory audit, you simply need to track the inventory each of your partners should possess and then audit their current inventory and sales. They provide a quick storefront with built-in traffic and a national reach and high visibility for discount offers.
A company must change their distribution holistically to a selective, disintermediated model to achieve control over pricing and margins. The clients who come to us almost universally feel the pain on their margins from price erosion.
Because online marketplaces are both the source of price erosion and the best place to track distribution leaks, we have a laser-like focus on that channel.
He focuses on helping launch, scale and optimize new technology offerings and business models. Together with a team of local and international software development staff, we are able to bring to market a wide array of unique mobile games that provide an experience that other gaming companies do not. Donna's prior experience includes developing the key marketing plan that launched several mobile versions of games for a large video game producer.
Using EVE, marketing has helped the sale's team move the conversation from cost to value, and if you are engaged in value-based selling, this is where you need to be.
If yours is like most consumer goods companies you are under enormous pressure to reduce your wholesale price and approve lower sale prices. Since price is an important factor in most purchasing decisions, marketplaces give prominent placement to the listing with the best price.
An online merchant also buys the product from the product company at $50 lists the product on Amazon. The model below accomplishes these necessities through selective distribution, inventory tracking, and price and distribution monitoring. This is different from intensive distribution, where a product is made available through any retailer, and exclusive distribution, where a product is made available through a single retailer. Any of these responsibilities can be contracted out to vendors but in that case, the product company retains control of inventory and can approve all pricing decisions.
However if other sellers also list the product, the company loses that sales data and loses control of pricing and product information. Before engaging, agree on a contract that the distributor will provide to all retailers and identify the resources that will be assigned to addressing channel issues that arise, such as monitoring pricing and performing inventory audits.
If an intermediary breaks contract and sells products wholesale to another company would you know? Once in place, it is critical for your warehouse to track which serial numbers it receives and which it sells to whom. While marketplaces increase the danger of channel leaks, they also consolidate the problem making it easier to track. Monitoring and enforcement is an important part of the strategy but it will fail if the other parts of your strategy do not successfully limit intermediaries, establish enforceable contracts, and provide data necessary for cleaning up leaks. Their relationship with retailers is strained and they don’t know how to fully engage in their channels without causing more problems. Donna will be assisted by 2 marketing interns hired from local universities as co-op students throughout the year. Because retailers have already promised low prices to their customers, the only means for margin improvement is the manufacturer. Amazon, for instance, places all of the listings for each product on the same page and funnels customers to the best offer by default. Their costs are lower since they don’t have a brick-and-mortar location so they list it for $75 and still make a comfortable margin. The next time the retail buyer orders inventory from the product company, they demand a wholesale price of $37.50. The other three primary elements remain critical steps in creating a healthy marketing strategy and all should complement each other. Intensive distribution is typically appropriate for inexpensive or commodity goods like snack food and plastic bags while exclusive distribution is typically appropriate for prestige goods like Rolex and Gucci. Because it is relatively easy for anyone in possession of a unit of your product to sell it on a marketplace, the following elements of this distribution model are critical to maintaining control. These students will handle the more routine aspects of the marketing efforts while Donna focuses on the key strategic relationships.
In addition to the price pressure from other retailers, there is now price pressure within the same retailer, accelerating price wars. If your company’s products are somewhere in between, a selective distribution strategy is best – but how do you select your retail outlets in order to enforce pricing? If your system records who should be in possession of each unit you can identify distribution leaks with a simple visual inspection of a product.




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