Siebel Case Study: Pricing Strategies in Software

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Siebel Case StudyPricing Strategies in Software

• Tania T. Goldszmidt
• VP, WW Operations, Sales
• Siebel Systems, Inc.
• October 18, 2004

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High Tech Software License Pricing Drivers

• Pricing primarily has to be
• Scalable
• Flexible
• Enforceable

• Pricing then has to
• Reflect Value (Communications, perspectives, end
  to end solutions)
• Incorporate feedback from Analysis
• Include services bundling

• Key Solution Components
• Intelligent Product Recommendations
• Complex Pricing and Configuration
• Entitlement Verification and Tracking
• Collaborative Order Management
• Streamlined Quote to Contract Process
• Simplified Self-service Purchasing

• Reflect software industry trends
• Driving recurring revenue streams subscription,
  maintenance
• Utility based How many times system is accessed
  or used vs number of users

• Serve different segments
• Enterprise Small and Medium Businesses
• On Premise License On Demand Subscriptions
• Support Services Custom Solutions Development

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Pricing Governance People, Process, and
Technology
Process
People
Methods Practices
Technology
Optimal Pricing Ease of doing business
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A Customer-Centric Pricing Process
Deploy price and discount information to support
price negotiations and transactions in a cost
effective manner.
Introduce new products and price lists, and
update and maintain pricing data.
Price Administration
Price Execution
Price Planning
Customer
Price Enforcement
Enforce contractual pricing policies, discount
authorities through approval processing and
routing Design compensation for pricing
incentives and discount penalties
Determine prices based on customers sensitivity
to prices from win/loss history and discount
analysis
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Phase 1 Focusing on Execution and Administration

• Objective Develop base infrastructure to drive
  operational efficiencies
• Redesign and Deploy New Lead-Quote-Order
  Management System
• Develop Analytics Datamart
• Create a predictable fulfillment model
• Help build, validate deploy best in class
  product configurations
• Create low touch, highly integrated applications
  that increase employee productivity rates
• Ensure effective communication handoffs between
  different business units involved in creation and
  management of price lists, deal approvals and
  orders

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Pricing Administration Challenges
1. Too Many Variables Price Lists
Base Price List
5 Price Lists
25 Price Lists
gtPricing Contracts
N-Tier Pricing Pyramid
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Pricing Execution Challenges
2. Final Price Determination Process Negotiated
Pricing
Product and Channel-specific Information
Customer-specific Information
Deal-specific Information
Negotiated Terms
Customer Base Price
Customer Price
Customer Net Price
Transaction Net Price
Base Price
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New Integrated Order Management Infrastructure
Order Lifecycle Management
Pricing Analytics
Mobile
Quotes
Contracts
Orders
Customer Assets
Customer Surveys
Call Center
Pricing Management
Product Catalog Management
Price Administration
Price Execution
Industry Analysis
Product Selection
Product Configuration
Retail POS
Price Planning
Price Enforcement
Deploy Catalogs
Define Offerings
Contract Systems
Web
Customer Information
Billing Systems
Opportunity
Contact
Account
Partners
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Consistent Pricing Through Approvals Routing
Why

• Revenue leakage due to rogue pricing/discounting
• Inconsistent discounting policies across the
  sales organization

Use Scenario Order needs Validations and
Approvals before submission
Features

• Route any transactional object (Agreements,
  Service Requests, etc.)
• Route in sequence or parallel
• Monitor approval status

Benefits

• Reduce revenue leakage due to rogue pricing
• Reduce the Agreement negotiation cycle time.

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Reduce Errors And Order Rework Through Real-time
Validation
Why

• Quote-to-Cash cycle is very long because of
  Quote/Order errors

Use Scenario Discount levels exceed the allowed
levels.
Features

• Centralized administration of validation rules
• Declarative validation rule definition
• Custom validation error messages
• Validation rule import/export

Benefits

• Reduce Quote/Order error rates.
• Reduce Quote-to-Cash cycle time.

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Results

• Operational Efficiencies
• Lower order costs by reducing quote and order
  errors by 35
• Reduce order cycle time up to 37
• Reduce customer inquiries collections by 50-80
• Created a consistent repeatable set of business
  processes
• Deployed a low touch, fully integrated set of
  applications
• Increased accuracy completeness of order data
  by 90
• Improved visibility into customer asset base
  deployments. Identification of up-sell cross
  sell opportunities
• Increase orders processed per employee by 15
• Manage order process with 47 less staff

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Phase 2 Focus on Pricing Enforcement and Analysis

• Objective Design Organizational Structures and
  Pricing Metrics
• Drive Top Management attention to pricing and
  discounting
• Increase visibility across deals, customers,
  products, markets
• Develop feedback mechanisms for better pricing
  planning
• Align incentives to drive improved pricing
  performance
• Facilitate negotiation process and improve
  customer relations

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Pricing Enforcement Challenges

• 3. Wide Variability in Discounting
• Large Discounts on Small Deals
• Wide Discount range on similar sized deals

• Discount from list in

• Deal size in Dollars

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New Deal Approval Process
Alignment across Business Units
CEO
The Siebel Pricing Committee will request CEO
Approval
Siebel Pricing Committee
Sales President
Siebel Finance
Siebel Global Services
Legal
Siebel Technical Services
Products/ Engineering
Product and Development Commitments
Discount and other Terms
Contract Terms
Maintenance Terms
Business Terms
Revenue Recognition
Revenue Recognition
Services Terms
Sales Operations

• - Review validated quotes
• - Review business terms
• Review discount approval authority
• Review existing contract terms
• Review potential revenue recognition issues

Any Pricing Special Business Terms on All Deals
to be sent to Sales-Deal Approvals
If no additional approvals are required,
Sales-Deal Approvals will approve the transaction
Sales Team
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Recommended Pricing Envelopes
Discount
Consistent Pricing Practices

• Provides discount guidelines by Industry, deal
  size, region
• Based on historical transactions analysis
• Aligned with Sales Compensation
• Discount Ranges
• Comp Plan Matrix
• Revised Quarterly
• Effectively used to set customer expectations

Deal Size
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Get Visibility Into Discounts That Erode Profits
Through Price Waterfall Analysis
Why

• Do not know the causes of low margins
• Unable to determine promotion and discounting
  effectiveness

Features

• Multi-customer comparison
• Discount and promotion analysis
• Pocket price

Benefits

• Determine promotion and discount effectiveness
• Identify discounts eroding profits

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Pricing Analytics Dashboard To Determine The
Impact Of Price Changes
Why

• Cannot determine the right price
• Unable to quantify the revenue, profit, market
  share impact of a price change.

Features

• Margin analysis
• Revenue distribution
• Price Elasticity

Benefits

• Set Prices to optimize on business objectives
  revenue, profit, or market share.

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Results

• Continuous drive toward more consistent
  discounting practices

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Case Study Packaging and Pricing for the SMB
market

• Have Infrastructure
• Have Discipline
• Have Analytics
• .discovered deep discounts and customer
  satisfaction issues in Mid Market offering

Phase 3 Address Value Proposition in Key Segments

• Need to understand and address different customer
  segments
• Need to understand customer key buying factors
  and provide appropriate deployment and pricing
  options
• Need to understand value and rethink how to
  package your products
• Do not forget about the complete solution
  service bundles

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Understanding the Customers key buying factors

• Feedback from MME Customer Interviews--10/03-6/04
• Siebel is too expensive for SMBs
• MME was 2X cost competitors
• Siebel often tried to sell SMBs enterprise
  product at 4X cost of competitors
• SMBs pay enterprise prices for maintenance
• Siebel does not understand SMB needs
• MME strategy of less functionality for smaller
  customers was patronizing
• Siebel offered no vertical solutions for the SMB
• Siebel assumed SMB sales cycle was simpler an
  attempted to close business over phone
• Siebel makes SMBs compete with enterprises for
  attention
• No separate service and support channel
• No separate sales org
• Siebel is too complex
• SMB customers reported spending 4X-6X more on
  Siebel implementations than on competitors1
• Product bundles forced customers to buy more CRM
  than they needed

1TCO for MSB CRM Software, Gartner, Feb 04
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Customer Sat Survey Supports Interview Findings
Q1 04 MME Customer Satisfaction Scores
MME Customers Want More Value
Scalability of Product .5
TAM Effectiveness .7
End User Education .7
Sales Org Effectiveness .8
Technical Training Effectiveness .8
Reseller and End User Education .8
Software Reliability 1.2
Consulting Services Effectiveness 1.3
Ease of Doing Business 1.3
Ease of System Administration 1.3
Ongoing Tech Support Effectiveness 1.4
Product Effectiveness 1.7
Functionality Meets Your Business Needs 1.7
Ease of Integration With Other Vendors 1.8
Ease of Using Product on Day-To-Day Basis 1.8
Speed of Product 1.8
Documentation 1.8
Ease of Product Configuration 1.9
Product Meets expectations 2.0
Ease of Product Installation 2.0
Price Of Product At Time of Install 3.3

• Gap between Product Effectiveness and Product
  Meets Expectations reflect disatisfaction with
  striped down product strategy
• Customers frequently expressed concern regarding
  price of software and installation
• Many SMB customers underestimated complexity of
  install and attempted without an SI

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Analyze Competitors Offering and Capabilities
Partner Management
Customer Service
Campaign Mgmt.
Data Cleansing
CRM Analytics
Content Mgmt.
E-Commerce
Field Service
Inside Sales
Field Sales
Siebel Professional
SalesLogix
MSCRM
Onyx
Pivotal
SF.com
Good enough functionality
Light Features or features delivered through
partnerships
Has yet to demonstrate functionality
Source A Feature Comparison of CRM Suites for
MSBS, Wendy Close, Gartner, August 8, 2004
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Siebel Delivers CRM for Everyone
CRM for any size Organization
CRM any way users prefer

• Hosted CRM
• On premise CRM
• Hybrid Hosted/On Premise

• Enterprises
• SMBs
• Workgroups

CRM for any type of user
CRM for any industry

• 27 Industry Solutions
• 1000s of business processes
• Universal Application Network

• Power User
• Casual Users
• Mobile Users

Enabling companies to deliver seamless and
superior customer experiences by extending CRM to
everyone in their organizations and partner
ecosystems
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Key Insights from Analysis
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CRM Professional EditionExactly What SMBs Need
Enabling companies to deliver seamless and
superior customer experiences by extending CRM to
small and medium sized businesses and partner
ecosystems
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Flexible Packaging Allows SMBs to Create Custom
CRM Bundles
Option 1
Option 2

• Build the Application You Need
• Start with a Sales, Service, Marketing or Call
  Center base
• Choose 6-8 additional modules at no extra cost
• Solution Grows with Business
• Purchase additional functionality a la carte
• Select from over 50 modules

Customer Choice
Customer Choice
Option 3
Option 4
Customer Choice
Customer Choice
Option 5
Option 6
Customer Choice
Customer Choice
Base Application
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Affordable Pricing Options Address SMB Purchasing
Preferences

• Single payment at time of purchase
• Maintenance and support purchased separately

995 per user

• 54K implementation
• Up to 200 users
• 6 week implementation

Fixed Fee Implementation

• Access to Siebels pre-negotiated rates
• Loan durations range from 24-36 months
• Convenience of dealing with a single vendor
• Partnerships with premiere financing companies

Financing
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100K Software and Implementation for 50 users
Cost Scenarios

• 54K Fixed Priced Implementation
• Up to 200 Users
• Sales, Service, Call Center
• Vanilla configuration with some allowance for
  customization
• Deployed in 6 Weeks
• Project Charter and requirements definition
• Design and configuration
• Data Migration
• Testing
• User and Administration setup

50 users
100 users
Software Cost
50,000
100,000
Fixed Price Implementation
54,000
54,000
Total Cost
104,000
154,000
2,100
1,540
Cost Per User
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Siebel 7.7 CRM Professional Edition Delivers
Unique Value That No Competitor Can Match

• Deep product functionality and usability drives
  adoption and reduces costs associated with
  customization
• Packaging that offers flexibility and
  expandability to simplify deployment and adoption
  and to grow with the business
• Competitive pricing with no hidden costs
• A partner network with the deepest CRM domain
  expertise to ensure customers get what they want,
  when they need it, for the price they can pay
• The solution that addresses evolving business
  needs through migration to Enterprise and
  deployment in a hybrid hosted environment

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Siebel Case Study

• Tania T. Goldszmidt
• VP, WW Operations, Sales
• Siebel Systems, Inc.
• October 18, 2004