Pricing Strategy

Florian Garlet
Account Manager ISV, Amazon Web Services

Christian Wirth
Pricing Expert, Optimal Price

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
 Cost-based Pricing Competitor-based Pricing Value-based Pricing
Price = COGS + Premium Price = Market Price – Price = What it’s worth to
Discount Customer
5’ X 5’ Premier Canvas $200 Version Auction Sale Price Hypothesized Sources of Value for
Deluxe Oil Paints $150 L 2011 $11.4 M Buyer at Auction
Fine Brushes $100 • “Value will rise over time”
J 2006 $18.6 M
Other Supplies $100 • Aesthetics and enjoyment
K 1997 $6.6 M • Addition to personal collection
30 Hrs Labor ($100 / hr) $3,000
H 1997 $7.2 M • Perception of owner as an educated
TOTAL COGS $3,550 person
+ 15% Markup $383 M 1997 $10.0 M

$3,933 O 1997 $31.9 M O 2015 $179.4 M

Source: Pricing Your SaaS Product - Accion

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
 Pricing in a Context of ISV SaaS Journey

CUSTOMER PRODUCT PRICING SALES & P&L

Expectations Design & Distribution Implications
Packaging

Source: EMEA AWS ISV Team

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
 Working Backwards from the Customer Customer

• Who is the customer?

• What is the customer problem or opportunity?

• Is the most important customer benefit clear?

• How do you know what customers need or want?

• What does the customer experience look like?

Source: Amazon
© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
 Four Models for SaaS Transformation Product

Introduction of a Offer an
new Product existing Product

SaaS
only new

SaaS / Perpetual
Model
new new

Source: EMEA AWS ISV Team

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
 Revenue Streams along your SaaS Journey Product

Linear SaaS Journey Hybrid SaaS Journey Stand-Alone SaaS

License Model

Support of
Cloud Migration
Cloud only Limited Feature
Add-ons SaaS Offering
Managed
Hosting

Software-as-a-Service

Source: EMEA AWS ISV Team

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
Sales and Distribution Sales

• Hybrid cloud journey

• The structure of the sales organization

• Channels

• Sales compensation with a SaaS product

• Sales training appropriate for SaaS products

Source: Forrester, The ISV Business Case For Building SaaS

on Amazon Web Services (AWS), August 2016
© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
ISV Revenue Streams P&L

• Licensing
• Subscription (per Unit | Payment Type) 45%
On-Premise 38%

• Maintenance
• Support
• Managed Services 36% SaaS 45%

• ad-based Revenue
• Consulting 19% Other 17%

• … 2014 2016

Source: Forrester, The ISV Business Case For Building SaaS

on Amazon Web Services (AWS), August 2016
© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
 How much time does an
average SaaS company spend
on pricing?

6 hours.
Source: Price Intelligently - Why You Should Change Your
SaaS Pricing Every 6 Months
© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
SaaS Pricing in 6 Steps

Christian Wirth
Pricing Expert, Optimal Price

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
Price is King!
Optimized Price
Original Price of your SaaS
of your SaaS
101.00 €
100.00 €

Profit 6.00 € Profit

Profit 5.00 €
+ 20 %

Example without quantity

effects

Costs Costs
95.00 € 95.00 €

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
Intro
Optimal Price helps you to unlock the potentials of your SaaS
prices.

We show you how to win new customers and how to maximize

your profit with a smart SaaS pricing.

Optimal Price does not focus on the price point only. We have a
much broader view on pricing.

We design individual pricing models with a customer-centric and

agile method: The Pricing Canvas.
© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
Our Method

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
1 Customer Segments - Personas and Needs

Personas Needs
Mike
work with
Excel

mistakes
Tim double
Pains work
Laura time
tracking
Jobs
32 years
42 years 36 years
accountin Gains happines
g marketin s
boss g director efficiency,
structure lower costs
d chaotic busy
competence

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
2 Value Proposition - Basis for Pricing

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
2 Value Proposition - Price Objects

product iPhone hotel accommodation CRM Solution

product versions 8 plus deluxe Salesforce Lightning
sub-products notes app breakfast contact management
options storage capacity half-board support module
accessories protective cover wellness sales analytics
services technical support laundry advisory services
extra charges express delivery late check-out premier services

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
3 4 Costs and Competition

The customer needs and the willingness to pay of the

customers are the drivers for a successful pricing.

Costs and competition are ‘only’ limits.

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
5 Pricing Strategy - Pricing Goals

Financial Customer
Goals Goals
 Turnover  Acquisition
 Profit  Loyalty
 Costs  Positioning
 Liquidity  Usage
 ...  ...
Business Marketing Pricing
Goals Goals Goals
Market Other
Goals Goals
 Sales Volume  Capacity
 Market Share  Reduction of
 Differentiation Storage
 Positioning  Risk Aversion
 ...  ...

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
5 Pricing Strategy - Positioning

high
Advantage High Price
Position Position
perceived relative
value/benefit

Middle Price
middle
Position

Low Price Overreaching

Position Position
low

low middle high

perceived relative price

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
5 Pricing Strategy - Differentiation

Price

More
profit!

More
clients!
Segment D
Segment C
Segment A

Segment B

Segment E

Segment F

Sales volume

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
5 Pricing Strategy - Differentiation

Price for 1 Liter

5,19 € 3,69 € 2,21 € 0,96 €

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
5 Pricing Strategy - Differentiation

• user / active user

• features
• customer segments
• contract duration
• billing cycles
• and many more

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
5 Pricing Strategy - Bundling

• reduce complexity
• segment the market
• package complementary
products
• support weak products
• stimulate new needs
• generate price emotions

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
5 Pricing Strategy - Psychological Price Levers

Contact +49 89 77 77 xxx

Fair and Fexible Pricing!

Our pricing plans are tailored for your specific needs...
• anchoring
most popular
• compromise effect
• non-linear pricing
Basic Plus Pro Ultra

Free Trial Free Trial Free Trial Free Trial

100 $ / month 190 $ / month 280 $ / month ...

▽ A
▽ B
▽ C
▽
▽
▽
A
B
C
▽
▽
▽
A
B
C
▽
▽
▽
A
B
C
• visual appearance
• priming
▽ D ▽ D ▽ D
▽ E ▽ E
▽ ...
▽ ...

Sign up Sign up Sign up Sign up • social proof

Testimonial
Need Help?
Chat with us!
• try before buy prices

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
6 Price Model - Components
Price Objects software, options, ...

Price Metrics user-based, volume-based, …

Price Points 99.- , 1’900.- , …

Price Levers anchoring, non-linear pricing, …

Price Model scenario A, B, C …

Price Validation analysis, real-time, …

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
6 Price Model - Optimal Price Matrix
Price Objects Product Product Version Sub-product Option Accessory Service Extra Charge ...

All-Inclusive (Flat Rate) Individual Prices

Unbundled Bundled (One, Multi) Hybrid

Volume-Based User-Based Feature-Based Segment-Based Time-Based Location-Based In-/Output-Based ...

Price Metrics Linear Exponential Regressive

Uncapped Capped

Single-Element Multi-Element

Single-Level Multi-Level (Adaptive Flat)

Fix Dynamic Personal

Price Points Low Price Level Middle Price Levle High Price Level Advantange / Overeraching

Skimming Penetration

Price Quality
Optic Barriers Mix Anchoring Compromise Non-linear Decoy Effect Try-on Complication Discounts Bonus
Inference

Price Levers Presentation of

Benefit
Fears of Loss
Cognitive
Dissonance
Priming Allegations Social Proof Authority Believe in Experts Sympathy Reciprocity Consistency Commitment

Contrast
Up-Selling Cross-Selling Portfolio Mix Shortage Structure Shift Lock-in Effects Ritualisation Phonetic ... ... ...
Priniciple

Price Model Scenario A Scenario B Scenario C Scenanrio ...

Price Validation Analyses: Cost, Competition, Sales ... Interviews: Clients, Experts, Nework ... Market Research: Conjoint, Westendorp ... Realt-Time

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
Summary
• The Pricing Canvas is an effective tool for your SaaS
pricing.
• A deep understanding of your customers and your value
proposition is key.
• Price positioning, differentiation, bundling and price levers
are powerful tools.
• You can maximize your profit with a smart combination of
price objects, price metrics, price points and psychological
price levers.
• Price is King! © 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
Summary

Thank you!

And.....one more thing!

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
Mini Pricing Academy coming this summer

More pricing content is coming in a summer webcast series that will

dive deep into:
1. Data driven pricing strategy
2. SaaS metrics
3. Value based pricing

Delivered by Patrick Campbell, CEO of ProfitWell, this series is based

on data from over 8000 recurring revenue businesses.

Mark your interest on the event questionnaire!

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.
Summary

Thank you!

© 2018, Amazon Web Services, Inc. or its affiliates. All rights reserved.