Executive Forum on Pricing for B2B Companies by Vendavo

www.vendavo.com Hear directly from executives of European companies who have implemented Vendavo and are realizing value today. Share information and tips with peers at companies in various stages of advancing their pricing capabilities – from just starting a pricing initiative to pushing the envelope. Plus, see the latest from Vendavo on pricing best practices and cutting-edge product innovations. This highly interactive event will focus on: - Pricing best practices for B2B companies- Customer presentations and panel discussions- Playbooks to implement and execute on pricing strategies- Networking opportunities with peer companies and Vendavo customers - Interactive sessions with peers and pricing experts - Vendavo University Bootcamp. Who should attend? Sales, Marketing, Pricing, and Finance Executives who are involved in pricing functions including:- Analyzing pricing and profitability- Setting prices for products and services- Administering prices and guidance for sales team as well as channel partners- Managing deal profitability and approvalsLearn from pricing professionals and our experts about how you can leverage pricing best practices to drive profits globally. Vendavo University Pricing Bootcamp NEW! Vendavo University is pleased to offer a complimentary pricing bootcamp session as part of the Executive Forum on Pricing agenda. During this bootcamp session, you will learn:- Price waterfall basics- Relevant terminology- Examples of leveraging the price waterfall for analytical purposes Cost Complimentary (Invitation-Only)This event is by invitation only. Please contact britt.dejager@pricingplatform.eu if you are interested in attending this Executive Forum on Pricing.

For the full agenda, please contact Britt.dejager@pricingplatform.eu You can also reach Britt on his phone for further information: +32(0) 51.320.372 

The Complete Guide To Freemium Business Models

Editor’s note: This guest post was written by Uzi Shmilovici, CEO and founder of Future Simple, which creates online software for small businesses. The post is based on a study done with Professor Eric Budish, an economics professor at the University of Chicago Booth School of Business. It also includes ideas and comments from Peter Levine, a Venture Partner at Andreessen-Horowitz and a professor at Stanford GSB

The idea of offering your product or a version of it for free has been a source of much debate.

Pricing is always tricky. Unfortunately, many entrepreneurs don’t give it enough thought. They will often copy the pricing strategy of similar products, base their decisions on pompous statements made by “experts” or rely on broken rationale (we worked hard so we should charge $X).

Free is even trickier and with so many opinions about it, we thought it would be refreshing to take a critical approach and dive deep into why some companies are very successful at employing the model while other companies fail. We’ve looked into economics academic papers, behavioral psychology books and strategies that worked for companies to come up with the key concepts below.

The Law of Marginal Cost

Pricing plays a huge part in competing for customers. Here’s an economic law that holds almost as much truth as the law of gravity: in a perfectly competitive market, the long-term product price (aka “market clearing price”) will be the marginal cost of production.

Guess what? Because of declining hosting and bandwidth costs, for most Internet products the marginal cost today is practically … zero.

In other words, if the cost to serve a customer (support aside) is zero, the long-term price of the product in the market will be zero (because of competitive pressure).

An Experience Good

At the core of the “Free” models are the products or services being offered to the customer. Most Internet products or services fall into the definition of an Experience Good: a product that needs a period of use before the customer can determine the value they can derive from it.

A good example is Dropbox. Consider Drew Houston’s words: “The fact was that Dropbox was offering a product that people didn’t know they needed until they tried.”

There are plenty of academics who looked into the pricing of Experience Goods. In 1983, the Economist Carl Shapiro wrote a fascinating paper about this subject. His conclusion was that since customers tend to underestimate the value of a product, the optimal pricing for an experience good is a low introductory price which is then increased when the customer realizes the value of the product.

In some cases, a customer might overestimate the value of the product. In that case, the optimal pricing strategy is to charge as much in the beginning or to lock in customers with long-term contracts.

This is why customers are reluctant to buy when someone asks them to prepay for a service or product or sign a long-term contract.

Hence, the introductory price is a signaling mechanism. The conclusion?  A low entrance price signals that you are confident that your product will create value for the customer.

The Psychology of Free

Much has been written about the Psychology of Free. Two books that looked specifically into the subject are “Free” by Chris Anderson and “Predictably Irrational” by Dan Ariely. Putting it simply, Free is an emotional hot button that immediately reduces the mental barriers for the customer. Free makes people think that they have “nothing to lose” since many ignore time as an investment.

From this perspective, free is a huge accelerator of adoption. The flip side of this is that after using the product for free, it is very hard to get the customer to start paying for it. This phenomenon was broad enough to get its own name: “The penny gap”—the hardest part is to get your customer to pay you the first penny. This is why it is so critical to choose your premium features wisely.

Decision Factors

If all that is true, it seems like Free (or Freemium) is the answer. Well…. not so fast. The decision is definitely not easy. Here’s a basic framework to help you make a more informed decision. A word of caution though: for every complex problem there’s a simple solution … and it’s wrong. The framework is helpful as a thinking tool but there’s no magic formula.

Here’s a set of questions that you’ll need to ask yourself:

1. How big do I want my company to be? If you are looking to build a lifestyle business that’ll make you $8,000 a month and you have a good product, you can probably do without Freemium. If you want to build a dominant company that has a substantial market share, Freemium can help you accelerate adoption.
2. What is the value of the free users? Across all successful Freemium companies, there is a way of making money or saving money from the free users. Either by saving on marketing costs (Dropbox) or by making money from ads or data (Pandora, Evernote, Mint) or both. If you cannot turn your free users into savings in marketing costs or revenues from third parties—figure out how!
3. What is the cost to serve free users?  This is a critical aspect of the model. If you spend a lot of money and/or time servicing free users, you are going to lose a lot of money. The cost of servicing free users must be lower than the dollar value they provide.
4. How big is my market? “The easiest way to get 1 million people paying is to get 1 billion people using,” says Phil Libin, the CEO of Evernote. Free adds another conversion step on your way to revenues. You need a big market to have enough people who will be paying you at the end of the day.
5. Is there value to one customer from other customers using the product? This will determine how many new users the free users will refer. There are three levels of value:

1. Inherent value – You can use Skype only if the person you talk with also uses Skype. You can share a Dropbox folder only with other Dropbox users. In this case, Freemium can be a powerful strategy.
2. Added value – You wouldn’t want to be the only user of LinkedIn. You derive value from other people using it. In this case, Freemium can help you gain traction if you use an effective invitation mechanism.
3. No value – You don’t care if someone is using Evernote or not. The only reason for one person to tell another about the product or service is if they think it is awesome.

The Types of “Free”

One of the key factors in making Freemium work is the structure of the offering. What is it that you offer for free vs. charge? There are different types of free strategies. Let’s take a look at the popular ones:

1. True Freemium – Give a version of the product for free and charge a fee for the other versions. There are two ways to go about this:

1. Value based – The most successful type of Freemium strategy. The more a customer uses the product, the more value she derives, the higher the switching costs are, and at some point she’ll hit a usage limit and convert to a paying customer. Evernote and Dropbox are beautiful examples of this.
2. Characteristic based – For example offering the product for free for one user (so it is based on company size for instance). Let’s think about a B2B application. If I’m a freelancer, I will use the application forever and I will never have to upgrade. If I’m a 3-person company, I can’t add more users and try the application for real and hence might not get to the point where I see the value in using it.
3. Free Product for a Cross Subsidy  - Give one product for free and charge for complementary products.
4. Time Based Free Trial – Give a free trial for X days and start charging once the trial ends. The issue here is figuring out what X is. On one hand you want to create a sense of urgency, on the other hand you need the customer to see the value in the system.

Open Source as a Free model

Lately I’ve seen many entrepreneurs confuse Open Source with Free so I thought it would be helpful to make the distinction. An open source model can definitely accelerate the distribution of your product and is a viable free model. It has two main advantages. You might get developers to contribute to your product (see WordPress). By doing that you can accelerate the development of your product. The other advantage is that you give customers peace of mind as they have control over the source code. You can then make money from selling pro features or value added services. There’s a critical distinction here and that is that your code is out there and anyone can start a company to commercialize this code. Bear in mind that it is very hard (often impossible) to reverse a decision to open-source.
The Last Bit And The Secret To Success

There are many factors to consider when you are evaluating whether to use the Freemium model or not. However, there’s one last secret that I didn’t share with you. During the study, while looking at the successful Freemium companies, a pattern emerged. They all had phenomenal products. All of these decision factors are useless if the product or service you are offering is nothing short of amazing. If your product is not creating great value for its users, no tactic in the world will make Freemium work for you.S


Source: 

Techcrunch: http://techcrunch.com/

Image credit: Shutterstock/JelenaA

ePP is pleased to announce a new partnership with Pricing Solutions Europe AG

The European pricing Platform (ePP) is pleased to announce that they have added Pricing Solutions Europe AG (PS Europe), a global pricing strategy, pricing management, pricing research and pricing consultancy firm as a new Expert Partner. Our new partner will be an exhibitor, and sponsor of upcoming ePP events throughout Europe. Furthermore they will provide ePP participants with relevant pricing content through state-of-the-art pricing: articles, white papers, research papers, academic papers, surveys, etc.

By delivering content through these resources, PS Europe contributes to improve the pricing knowledge of our Pricing Platform Participants.

“Pricing is right now a hot topic in most CEO’s mind.

Current market dynamics about raw materials rising costs, disruptions on the competitive landscape, mostly driven by BRICS, and some recovering markets niche’s opportunities are evidencing that organizations who have a good level on the Pricing discipline are outperforming the Market.

By their ability to price better their products & services, and be more agile against competitive and market reactions, they are able to manage more efficiently the money spent on Discounts, Rebates and others “Sales Levers”, and translate on their P&L the Value perceived on their products & services, ” said ‘Fernando Ventureira , Managing Director, Pricing Solutions Europe AG. “Partnering with ePP puts us in a position to divulgate better and more extensively the Pricing Discipline, at this time quite exclusive of professionals working on large and multinational organizations.”

Pricing Solutions Europe AG is an expert Consultancy in Pricing, with more than 20 years of experience and quite well known for the high standard deliveries on services related to People & Organizations (i.e. Training & Coaching), Pricing Management (i.e. Pricing Diagnostic & Roadmap for Excellence), Pricing Research & Analytics (i.e.: Value Map and Price Optimizer) and Systems & Tools (RFP Management & Business Intelligence).

“Pricing Solutions Europe AG has been carefully selected to join our group of pricing experts worldwide because of their proven track record, experience, and pricing science methodologies,” said Pol Vanaerde, ePP president. “We are pleased to have Pricing Solutions Europe AG included on our expert list, and look forward to working closely with them to better serve our participants.”

ePP serves as the first ‘Not-for-profit’ network for cross-industrial pricing decision makers in Europe. Through various on- and offline media, ePP is dedicated to develop and share pricing best practices, effective tools, methodologies and populate technological solutions assisting in successful definition and implementation of Strategic Pricing.

About Pricing Solutions Europe AG

Our mission is “To significantly improve our Clients Profitability by helping them achieve a World Class Level of Pricing Competency”

About European Pricing Platform

The ePP offers your company to have the right pricing tactics in place to guarantee customer loyalty and deliver sustained margin growth to your business. Enhance your pricing know-how and be successful in it by joining this dynamic and yet resourceful pricing platform.

The European Pricing Platform is pleased to announce that they have added Navetti AB as a new Expert Partner

The European pricing Platform (ePP) is pleased to announce that they have added Navetti AB, a global expert on pricing know-how and pricing software solutions, as a new Expert Partner. Our new partner will be an exhibitor, and sponsor of upcoming ePP events throughout Europe.

Navetti will offer ePP participants with experience from true customer cases where participants will recognize its own situation and understand the value of implementing a global pricing strategy. Navetti has a strong track record of successful implementations of value based and market driven pricing strategies, methods and processes all supported in the Navetti PricePoint™. The main objectives from previous implementation projects have been;

·        Improved price quality

·        Improved customer trust

·        Improved Profitability

·        Improved efficiency,

all supported in Navetti PricePoint™ to secure sustainability.

“International companies have recognized the importance of implementing a global pricing strategy to secure profit optimization and manage all aspects of the price waterfall in a global business.” said ‘Andreas Westling, Senior Partner, Navetti AB.

“Partnering with ePP puts us in a position to reach a wider audience and provide guidelines to international manufacturing companies on the journey to pricing excellence.”

Navetti is an industry-leading pricing software supplier toward the manufacturing industry. Navetti offers both management consultancy services and license its own developed software solution Navetti PricePoint™.

“Navetti has been carefully selected to join our group of pricing experts worldwide because of their proven track record, experience, and pricing knowledge,” said Pol Vanaerde, ePP president. “We are pleased to have Navetti included on our expert list, and look forward to working closely with them to better serve our participants.”

ePP serves as the first ‘Not-for-profit’ network for cross-industrial pricing decision makers in Europe. Through various on- and offline media, ePP is dedicated to develop and share pricing best practices, effective tools, methodologies and populate technological solutions assisting in successful definition and implementation of Strategic Pricing.

About Navetti

Navetti has received recognition for its domain expertise in the field of pricing for international manufacturing companies, where price optimisation between markets and product families are critical.  Navetti has over the years developed a solid value and- market driven based pricing methodology, that has delivered increased profit and pricing quality to its clients.  The methodology in combination with Navetti PricePoint™, has clearly increased profit, customer trust and sustainability.

About European Pricing Platform

The ePP offers your company to have the right pricing tactics in place to guarantee customer loyalty and deliver sustained margin growth to your business. Enhance your pricing know-how and be successful in it by joining this dynamic and yet resourceful pricing platform.

Source: Britt Dejager - European Pricing Platform & Andreas Westling - Navetti AB

When Advisors Add Value, Pricing Power Follows

As the expression goes, when you settle for less than what you’re worth, you get less than what you settled for. Yet there's reluctance among many financial advisors to raise their prices for the services they offer, particularly after the 2008 crash damaged so many portfolios. Asset-based fees dominate the industry’s revenue stream, accounting for 85 percent of the total, according to the consulting firm FA Insight. Yet median fees as a percentage of assets under management were virtually unchanged between 2009 and 2010, the firm said.

Eliza De Pardo, principal and director of consulting at FA Insight, said just 31 percent of firms review their pricing strategy annually. It’s too bad, since there’s data showing that firms that review their pricing each year tend to have higher profitability per client. She understands the reluctance some advisors have about telling clients they want to charge more. “If the markets are declining, it’s a tough conversation to have with clients, obviously,” she told advisors during a pricing workshop at a recent Pershing Advisor Solutions conference in Manhattan. “The real question is, how do you deliver value, and can you communicate that to the client? If you can communicate it effectively, I don’t think anything’s off the table.”

One of the first places to start when reviewing what you charge is the condition of your local market, and the size of the fees your competitors are levying. De Pardo warns against placing too much weight on the latter, however, since all practices are unique. Advisors need to decide what pricing method is best for their practice—fees based on percentage of assets; flat or variable fees based on the advice needs of the client; hourly fees; or a fee that varies with the value delivered. Many advisors use a combination—an asset-based fee coupled, for example, with a flat fee for producing a financial plan. (Such fees may vary with the level of complexity required to produce the plan.)

Minimum fees help maintain profits; 57 percent of firms use them, FA Insight found. The median minimums range from $2,000 for firms with annual revenue of $75,000 to $500,000, to $5,000 for firms with revenues from over $500,000 to $3 million; firms with revenues greater than $3 million had median minimum fees of $9,000, the consultant said. Value-based pricing strategies are employed by 70 percent of the largest and most successful firms. Under those strategies, an advisor documents the financial savings that a client accrues through, say, lower insurance premiums or a reduction in personal tax liabilities through the advisor’s recommendations. The advisor would keep a percentage of the savings—maybe 20 percent—and add it to the regular fee that’s charged.

When preparing to raise prices, sit down beforehand and outline each argument that an unhappy client is likely to raise, De Pardo said, and prepare your counterarguments that demonstrate the value you’re providing. In addition to clarifying the case for your added value, she said, the exercise will help you feel less nervous when sitting down with particularly difficult clients. And be sure to share your value story with the rest of your staff, so they’re on board.

Advisors who want to charge more for their services have to differentiate themselves from their competitors, she said. Some regularly distribute e-mail newsletters on economic topics of interest to their clients, or organize luncheons for clients at which experts might speak about a particular topic. Investors recognize the value these things provide, De Pardo said. “Very rarely will a client say, ‘You know what? Keep the educational stuff.’ ”

Registered . Rep. The Source for Financial Advisors:  By Jerry Gleeson