Enterprise Pricing Strategy: Focus On Value

Tien Anh Nguyen

In my previous blog posts, I have discussed at length the complexities of establishing an enterprise pricing structure, the dials on the model to optimize revenue and growth, and building a long term view of the price strategy. In this last post in the series, I want to go back to an even more fundamental concept: Value.

Ways to define Value for your Pricing Strategy

Pricing is really about establishing and communicating the value that your product or service brings to your customers. The price of a product really needs to be consistent with its value in the following aspects:

  • It is the value that your target customers will realize by using the product or service in the intended use case, compared to the case where they do not have a similar product or service
  • It is a value that your target customers can perceive and are used to measuring or (even better) quantifying
  • It is communicated in measures or metrics that the customers are familiar with and that they believe are important
  • If your product or service delivers any value in conjunction with other peripheral products and services then your price needs to account for the incremental values or costs of these externalities.
Enterprise pricing strategy: focus on value

A software product can be valuable in many different ways. For example, it can be an essential enabler of a business function, such as sales force automation.

In a brand new market created by a disruptive technological innovation, there is no historical data or competitive pressure to set the price at any particular level.

In this case, the value of the product can be considered as the value of having that particular business function, which can then be measured as outputs generated by this new business process, or improvement in productivity of existing processes, increase in outputs (sales), or reduction in waste.

For more mature product categories there are more competing products, and therefore there will be price competition and far more options for the buyers.

For most companies, the value of software is typically determined by the laws of supply and demand, and tends to be driven down due to price competition. In such a case, most of the value of the software will be tied to how it is differentiated from the competition by offering unique functionalities or scalabilities that are not easily replicated by competing products.

In such a market, having a focused customer segment is crucial. By building features that are valuable for a particular market segment, the company produces a product that is more valuable for customers in those segments, and can therefore charge a premium price over competing products.

It is also important not to get overly distracted by price reactions of customers outside of youe target segments, because your pricing model is probably not right for them in first place (at least not in terms of how they perceive the value of the product).

Another thing to consider is that the value of the product does not simply scale linearly with usage or complexity. Your product is vastly more valuable, for example, when it has a built-in network effects, whereby the more people use it, the more valuable it becomes.

If your product can leverage the value of its network of customers, you should price it with this exponential growth in mind. This is an example of a positive externality whose values only become important as the product grows in scale, but need to considered in evaluating the overall value of the product.

Establishing the value of the product is also important because it adds clarity to the pricing model and makes communicating it to the customers a lot easier. To avoid causing sticker shock, the pricing model needs to speak to the values that customers are familiar with, and ultimately, it needs to be consistent with how the success of the product is measured.

Why not establish the measures of success upfront and link them with pricing components, so your customers automatically have a product success scorecard that doubles up as a price list? 

For example, if you know that customers in your market typically require a ROI of 20% on technology investments, then your pricing needs to be consistent with this — after taking into account all costs and benefits associated with your product — from the perspective of the customer.

To wrap this up, I would like to recommend a few additional thought provoking blog posts by experts and practitioners on the same topics. Many of my thoughts were guided by them:

Image by Tom Buford Marketing


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Top Ten Business Innovation Posts of the Week [January 21, 2013]

Lindsey Nelson

On the Business Innovation site, we deliver the top blogs, news and featured content on business innovation for professionals looking to grow and gain a competitive business advantage. We cover hot topics and thought leadership on mobile applications, cloud computing, big data, real-time analytics as well as the top challenges facing executives and leaders in sales & marketing, finance, human resources and much, much more.

Each week, we curate and publish the top ten posts of the week on business innovation from across our content categories. We hope you find these articles valuable, informative, and interesting. Enjoy!

2013 Technology Trends

Industries – By Tien Anh Nguyen, @tienanh

Tien reflects on his 2012 predictions, as well as what may be in store for 2013. Do you agree with these? Read more to find out.

The Soft Benefit of Big Data Analytics: Thinking Differently

Analytics – By Joseph Dennis Kelly, @JosDenKelly

Big Data is helping decision makers gain by giving them direct insight into the patterns that shape tomorrow’s trends, and access to real-time data. What are the soft benefits and how do you make the shift to this decision making culture? Joseph shows you how.

Mobile Is Maturing — Are You? [Infographic]

Mobile – By Mutual Mobile, @MutualMobile

Mobile has finally moved out of its adolescence. It’s become more sophisticated — and so should your marketing approach. Here’s an infographic that will help you discover the who, what, where of how you should handle this new mobile environment.

Duct Tape And IT Management

Industries – By Norman Marks, @normanmarks

Is the relationship between your business and IT hanging on by duct tape? Norman gives us a few real life situations to consider and a few questions you need to ask your organization that will help strengthen the relationship.

Baking And Computers, A Surprising History Of Analytics Pioneers

Analytics – By Timo Elliott, @timoelliott

You’d never think put “bakers” and “pioneers of analytics” together in the same sentence, but they were in fact the first businesspeople to use the first business application ever. Learn more.

Why Content Marketing Should Be In Your 2013 Plan

Sales & Marketing – By Lindsey LaManna, @LindseyLaManna

As a consumer, it doesn’t surprise you to hear that you are passionate in the buying process. Searching for and using all the information you can to make an informed purchase. So what happens when you invest in content marketing? Hear from Lindsey on the value you’ll see, as well as some lessons learned.

The In-Memory Database Revolution

Big Data – By Carl Olofson, @databaseguru

There’s a revolution at hand in the database world. Gone are the dominant paradigms, here to stay is very fast, multi-core processors. Carl Olofson, Research VP at IDC weighs in on the current state and implications of the new technology.

Building Content Marketing Strategy – 10 Steps

Sales & Marketing – By Michael Brenner, @BrennerMichael

As we heard from Lindsey LaManna earlier in this post, content marketing is the key to reaching your consumers. Michael shares with us his expertise on how to build a strong content marketing strategy.

Analytics For All: The Promise of Big Data

Analytics – By Irfan Khan

Analytics isn’t a new technology, in fact it’s been around for decades. So why the all of a sudden huge growth? Irfan cites big data as the catalyst. Learn more here.

The Enterprise Mobility Minute #3: Got an Enterprise Mobility Strategy? Go Get a New One

Mobile – By Dr. Ahmed El Adl, @aeladl

As we enter 2013, it’s time to consider the major trends that are now shaping mobile opportunity – and causing us to completely rethink our approach to mobility strategy. Make sure your aspects meet those that Dr. Adl identifies here.


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Hedge Funds Do Risk, And Now Risk Management Too

Tom Groenfeldt

Hedge funds for awhile thought they had no risk so they did nothing,” said Debbie Williams, head of marketing and business development at R² Financial Technologies, part of S&L Capital IQ. The firm provides multi-asset risk systems for the buy-side, something which they haven’t really had, she added.

When hedge funds did have some issues with risk, they yelled at their prime brokers to do something about it. Buy-side firms that did run risk management might have used Riskmetrics or Algorithmics,, while others used Excel, a flexible all-purpose tool not designed for specific tasks like risk management.

“But it’s hard to do intraday decision support [with those tools] because you can’t get the analysis turned around quick enough and you can’t run complex scenarios,” said Williams. “We don’t typically have much competition in terms of head-on features. Instead, we usually compete with a back-office systems that someone is persuading the front office they should use.

Today’s demand for buy-side risk management is also driven by changing investment styles, she added. In the past the buy-side invested in a single asset class — usually equities.

“Even today the vast majority in numbers and dollars of assets are invested in conventional buy-side equity portfolios, so the big decision is which stock to buy and which to sell.”

Single asset funds face two risks. One, they buy and sell the wrong stocks, don’t perform as well as the S&P, look like idiots and everybody takes their money out and walks away. The other risk is that the fund invests in a selection of stocks that deviates from its asset allocation. BARRA has offered multi-factor equity models which can tell how any portfolio of equites will perform based on a set of factors with risk measurement.

“That breaks down when you buy things that aren’t equities and it breaks if you aren’t just buying and holding — if you have short positions or hedges, those tools don’t account for them.”

Although hedge funds widely enjoy a reputation for being run by cowboys who will invest in anything as long as the holding period isn’t more than a few minutes, in practice, said Williams, many of them invest solely in equities, long-only or long-short.

Macro funds are more demanding because they follow, or one might argue, create opportunity, like the U.S.-based funds that bet against the housing bubble.

“The other growth area is credit — long-short bond positions, debt, buying loans and loan portfolios — the whole gamut of structured finance. That is where a lot of money has gone — into higher risk, higher reward — and then the risk tools become more important than they would be for a portfolio manager deciding between Ford and GM.”

While the vast majority of assets under management (AUM) are in conventional funds, the growth is on the more active side. Williams said about $80 trillion is in conventional and only $2 trillion in hedge funds, but hedge fund assets have grown 50x in the last 20 years while conventional asset managers’ funds have only doubled.

Pension funds and insurance funds are looking for higher returns.

“Most assets come through the institutional side , and they can’t just select a fund manager to pick equities and hope that will meet the fund’s liabilities. If you have fixed liabilities not doing well on the asset side of your book, that is fatal.”

Articles in Institutional Investor show that more traditional asset managers, like pension funds, are buying real estate, investing in hedge funds, distressed debt and CLOs again and in hedges for their book, she added.

“We are not going to go backwards where you can succeed as an institutional asset manager just by picking your favorite security or bond and holding it. Risk tools will have to catch up.”

Alternative investment funds, which operate in a very competitive world, use R²   in their sales process.

“We were a little surprised at the requirement we have had for external reporting,” explained Williams. “We built this a as decision support, not necessarily for end users and customers.”

Where investor relations was something of an oxymoron for highly secretive hedge funds not too many years ago, now funds have to make their results visible to institutional investors.

“There has been a big demand for more externally oriented reporting,” added Williams, “first for investors then for marketing to new investors and soon, I expect, to regulators. One way for hedge funds to to differentiate is performance. But if your money is coming from relatively sophisticated investors, the other way to differentiate will be risk efficiency — how much risk did you take to generate that performance?”

Williams is looking forward to the next big (also last big) investment trend — securitization.


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Making a BYOD Business Case

Lindsey Nelson

It’s where business meets personal – giving you the ability to work anywhere, anytime, with your own device. Bring Your Own Device BYOD mobility(BYOD) programs are emerging in enterprises, but don’t underestimate the effort it takes to implement.

That’s probably why your company has yet to do so. If you’re looking to bring BYOD to your enterprise, whether small or large, you need to make sure you follow these four steps while developing your business case.

IT Isn’t Your Only Friend, Make New Ones

Although your IT department will carry the majority of the work, you need to ensure that human resources, legal and finance are all involved from the start. This will help you when you begin to develop your program policies and processes.

Let IT build the relationships with your security and governance teams, handle the vendor management and application development. Don’t try and getting involved with something you don’t know about, these people speak the same language, letting them hold the conversations will ensure you have the right strategy and tool set in place.

Share Your Vision

This one plays off the previous, make friends – especially those higher up – and make sure you collaborate to create a shared BYOD vision that identifies:

  • The company’s overall goals to achieve with BYOD
  • A timeline for when your BYOD program will affect your different business units
  • Determine which old processes need updating
  • A deadline for when all your named BYOD program benefits are reached

Be Proactive On the Issues

Everything that glitters isn’t gold. Make sure you are proactive on the issues and think about what happens with any of the below scenarios.

  • Who takes care of the backup? Is it IT, or the employees responsibility? Do you have a tool in place that will manage this?
  • Make sure you have a team in charge for compliance.
  • Technology can be a fickle thing, what if all the data on the device is suddenly lost? Was this because of your poor backup policy? Who is responsible for doing the backup? When it’s recovered, is it possible to differentiate between private and corporate data?
  • What happens when your employee loses the phone? Who replaces it? How long does the employee wait before telling your company? Do you have remote data deletion software in place?
  • What happens to the company data if you lose the employee? Is someone responsible for ensuring the private data has been deleted?

Justify Your BYOD Program

Make sure you have a strong and clear BYOD business case. Here’s where working with your business partners will come into play. By working with them you can provide insight into your company’s finances, personnel requirements, and other resources necessary to the program’s deployment.

Keep in mind these key questions regarding cost:

  • What will you need to add or take away from your network infrastructure costs and wireless services?
  • Which MDM solutions/subscriptions will you use?
  • Which hardware will be accepted by the program?
  • Which additional application management and security costs will be incurred?

Don’t forget to highlight the expected benefits like:

  • Productivity increases from your workers having the access to communicate and collaborate any time they want
  • Revenue bumps from your sales teams having access to all deal related information like contacts, directories, and order detailsall on their phone or tablet.

Following these suggestions will help you get your BYOD program started, but ensure you and those identified as responsible for their respective areas continue to be diligent. It’s the only way to be successful.

Did I leave anything out? Let’s continue the conversation on Twitter: @LindseyNNelson


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5 Ways Big Data Will Change Lives In 2013

SAP Guest

By Siddharth Taparia, Senior Director, Portfolio and Strategic Marketing, SAP

Recently, I saw firsthand how a new “universal identification” program called Aadhar is taking shape in India. It has potential to improve the lives of millions of poor people via Big Data.

Aadhar is an ambitious government Big Data project aimed at becoming the world’s largest biometric database by 2014, with a goal of capturing about 600 million Indian identities. This could help India’s government and businesses deliver more efficient public services and facilitate direct cash transfers to some of the world’s poorest people — while saving billions of dollars each year.

Many of the core ideas surrounding Big Data have been around for awhile, such as traditional data mining and analytics. But new technology enables the collection and analysis of, until recently, unimaginable data volumes at extremely high speeds.

“Big Data” refers to methods and technologies that help businesses and individuals make better decisions by analyzing large data volumes and predicting probable outcomes. The term has been around for a few years, but 2013 may be a year when Big Data moves from the technical to the practical, as real consumers and citizens start seeing its impact.

1. How we spend: Traditional and online retailers typically spent resources building huge datasets trying to understand their customer’s buying patterns using programs such as loyalty points. They offered big discounts on certain shopping days, such as Black Friday. New technologies help companies provide real-time offers to customers based on the date, the time of the day and the location of their shopping. As companies use Big Data to store and analyze more and more information about customers and competition, shopping will become more personalized and marketing more targeted. In short, you may get a better deal than someone sitting right next to you!

2. How we vote: If there was one area outside of business where Big Data had an enormous impact in 2012, it was in the U.S. presidential election. President Barack Obama’s campaign ran what has been referred to as the first Big Data-powered campaign that could micro-target individual voters most likely to be persuaded. The basic idea was to analyze every individual voter’s preferences instead of relying on traditional methods of taking polls with small sample sizes and extrapolating. This was historic because it upended traditional methods of running campaigns. Mounds of data from surveys, phone calls, external voter lists and past voting patterns drove real-time voter outreach and get-out-the-vote efforts. But Big Data was not limited to campaigns with huge technology infrastructure, as Nate Silver of The New York Times famously predicted the 2012 election outcome by applying statistical models to aggregate existing polling data.

3. How we study: A number of academic institutions are employing Big Data to address dual challenges of high dropout rates and the ensuing decline in state funding. The basic approach is to ensure that students select the majors that are best suited for them and nudging them to take classes that increase their chances of successfully graduating. Even the course material can be personalized for the students based on their interest, prior courses and the medium they find easiest to learn from (video, text, etc.). This is all made possible by analyzing vast amounts of student data, such as standardized test scores, previous grades and even real-time data points like clicks in an online class. Applying statistical models to each student’s profile and comparing results to similar students can predict the most likely outcomes (like succeeding in a class or completing a major) and offer constructive recommendations.

4. How we stay healthy: Healthcare has been a particularly difficult domain for analytics because of myriad privacy and regulatory restrictions that prevent the usage of data for research purposes. However the proliferation of smartphones and other “self-tracking” devices is fast changing the landscape. It is now possible to collect data from healthy individuals by constantly monitoring their vital information 24 hours a day, creating a very large unbiased control group that can be segmented by demographics such as age, sex and race. Analyzing large volumes of historical and real-time data can help individuals make healthy lifestyle choices, take preventive measures (e.g., flu vaccinations), predict their chances of being inflicted with a certain disease and possibly even provide personal analytics on their daily activities and how it impacts their health.

5. How we keep (or lose) our privacy: With all this data collection and analysis, privacy has rightly been a paramount concern with Big Data. Often individuals fear Big Data becoming the Big Brother (or Big Boss!)watching their every move and knowing the most intimate details about their life. An increasing amount of data — especially online and on smartphones — can be collected without the user’s knowledge or consent. Collection, analysis and sale of personal data on the Web can range from your search habits to shopping preferences to personal health issues, and it is a booming business, according to a recent Wall Street Journal investigation. Still consumers and citizens willingly share much of the data collected today.

India’s Aadhar collects sensitive information, such as fingerprints and retinal scans. Yet people volunteer because the potential incentives can make the data privacy and security pitfalls look miniscule — especially if you’re impoverished.

Big Data is quickly becoming a vast goldmine for businesses, governments and even law-enforcement agencies, but it also attracts hackers and identity thieves. Savvy consumers will understand how and where to best share their data, and what they get in return.

Throughout 2013 we are sure to see more and more impact of Big Data in other aspects of our daily lives, such as how we bank, watch TV and even stay safe. Consumers would do well to weigh the cost and benefits before allowing access to their data.

Follow Siddharth Taparia on twitter @siddharth31


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