Pricing Strategy

1. The Top Right Quadrant:
The Strategic and Tactical Answer to
Profitable Pricing
October 28, 2010
Ritesh Sheth, Director
Pricing Strategy

2. PPS Conference Confidential 2
Executive Summary
This presentation provides an opportunity to create and add value to an
organization’s existing pricing strategy.
There are two major categories for work around Pricing:
• Marketing Strategy
• Finance Operations
Within the Strategy umbrella lies a variety of value-adding pricing related
activities including:
Operations for Pricing includes:
Over time, these pricing activities will help an organization grow revenue and
increase profitability.
Metrics Forecasting Trending
Competitives List Pricing Market / Mix
Modeling Product Launch Cost Package
Deal Pricing Deal Review
Desk
Account and
Segment P&Ls
Large Deals Sales Training Controllership

3. PPS Conference Confidential 3
Marketing Strategy competencies include a host of value-add
activities and deliverables to provide discipline around Pricing
– Set Pricing Strategy
– Weekly Metrics
 Product Scorecards
 Attainment vs. Forecast
– Forecasting by Product
 Revenue
 Units
 Margin
– Trending
 List Margin (LM%)
 Product Margin (PM%)
 Discounting (Disc %)
– Ad-hoc Analyses
– Competitive Analysis
 WAPP (Weighted Average Price
Position)
 MCPP (Minimum Configuration
Price Point)
 SAPP (Starting At Price Point)
– Master Price List
 List price and Cost by SKU /
Product Code
 Pricing Roadmap
– Attach Rates Consolidation
– By product family
– Modeling
– Product Launches
– New Service Requirements Doc
– Timelines
– Pricing Strategy Presentations
and Training
– Cost Package Integration &
Analysis

4. PPS Conference Confidential 4
Pricing Related Finance Operations competencies provide an ongoing
view of the business revenue / profitability and necessary
communications / controls to ensure growth and profitability
– Set Deal Pricing Strategy
 Discount Authority Matrix
– Deal Review Desk
 Deal Structuring
 Approvals (Vendavo)
 Deal P&L Tool
 Upsell Tool
– Account P&Ls
– P&L for the Business
 By Segment
 Aligned with Sales Org
– Large Deals Analysis
 Disc % Trending
 Profitability Analysis
– Sales Training
 Pricing Methodologies
 Upsell Strategies
– Controllership
 Finance Alignment on Quotas /
Compensation
 Controls – Risk Management

5. PPS Conference Confidential 5
Here is a proposed timeframe for implementing both the strategic
and operational pricing competencies within Hoover’s
3 Months
6
Months
1st
Year
2nd
Year
3rd
Year
StrategyOperations
Cost Package
Master Price
List
Competitive
Analysis
Weekly
Metrics
Attach Rate
Analysis
Modeling
Forecasting
Product
Launches
Trending Ad-hoc
Analysis
Discount
Authority
Matrix
Deal Pricing
Sales Training
P&Ls
Large Deals
Analysis
Controllership

6. PPS Conference Confidential 6
Pricing Strategy
Margin %
WAPP
Margin $
WAPP = Weighted Average Price Position
Richness of Config
IncreasingWAPP
IncreasingMargin$

7. PPS Conference Confidential 7
Dell Confidential
For Internal Use Only
Pricing Formulas
Price = LP * ( 1 - DR%)
LM% = 1 – C / LP
PM% = 1 – C / P
C = P * (1 – PM%)
P = C / (1-PM%)
Formula for solving for upsells:
NP = BP + (LPr – LPb) * (1 – DR%)
Legend:
LP = List Price
DR% = Discount Rate %
LM% = List Margin %
C = Cost
P = Price
PM% = Product Margin %
NP = New Price
BP = Base Price
LPr = List Price Rich Config
LPb = List Price Base Config

8. PPS Conference Confidential 8
The goal here is to help drive the sales team to upsell and achieve
sales within the top right quadrant, where discounting is higher, but
so is absolute margin $, and where we are most competitive
WAPP
Level of Offering
List / Product
Margin $
Min Avg Rich
1.0
1.5
2.0
100%
60%
30%
WAPP - Weighted Average Price Position:
Disc %
Margin $
Competitor Offering w/in product line weighted by Hoover's Attach
Hoover's Weighted List

9. PPS Conference Confidential 9
WAPP
Level of Offering
List / Product
Margin $
Min Avg Rich
1.0
1.5
2.0
100%
60%
30%
Disc %
Margin $
Here’s a pricing strategy example applied showing an upsell from the
base price to the updated Price and a further upsell to achieve even
greater profitability – assumes guidance in profitably lower
discounting
WAPP - Weighted Average Price Position
UP = BP + (LPu – LPo) * (1 – DR%)
Upsell
Opportunity
Updated Price
(UP)
Base Price
(BP)

10. PPS Conference Confidential 10
Here’s the math to apply for the example presented in the previous
slide – below shows the math behind the upsells
 X = $1,000 Current Discounted L2 License + ($1,732 L2 + AH Add-
on List - $1432 L2 List) * (1 – 10%)
 X = $1,270 L2 + AH Add-on Discounted Bundle
 FR Add-on: $650
 Apply $650 FR Add-on upsell Opportunity at 10% off:
 X = $1,270 Discounted Bundle + ($2,382 L2 AH + FR List - $1,732 L2
AH List) * (1- 10%)
 X = $1,855

11. PPS Conference Confidential 11
Business Case Template
• Customer:
• Business Case / Project:
• Acquisition / Retention:
• Quantity:
• Total Deal Size:
• Timeframe:
• Location:
• Justification for pricing below list / book value:
• Leasing:
• Any additional discounting / product credits / rebates:
• Margin Recovery Strategy:

12. PPS Conference Confidential 12
P&L Objectives and Impact
 Revenue Adjustments and Concessions
– These are essentially give backs to customers for a variety of
reasons.
 Product issues
 Customer experience issues
 Competition
– It is critically important to understand the direct negative
impact this can have on the P&L

13. PPS Conference Confidential 13
Negotiating Techniques (BATNA)
 Best Alternative To a Negotiated Agreement (BATNA)
 Strive to provide alternatives vs. “no”
 “How” you communicate is just as important as “What”
 Transparency to financials via cost files, P&Ls, product
knowledge
 Triangulate financials via:
– Segment / Regional discount rates
– Historical P&L
– Regional P&L
– Discount rates by product
– Win / Loss Reporting

14. PPS Conference Confidential 14
Top Ten Questions from Management
 If negative margin: What’s the strategy to make money in this
account?
 Allow enough time for approvals, per an approval matrix, schedule
them
 Relay what the customer has told us in price terms, not margin
 Know how this deal compares to an existing contract
 Other Suppliers / OEM components: What is our value add
 Know competitive landscape
 How many rounds do we expect, or is this a Best and Final Offer
 Leverage any strategic funds: marketing / other supplier rebates
 Have the correct product offering / bundle
 Make sure the pricing manager is well aware of any deal that ends
up in front of the CEO / President

15. PPS Conference Confidential 15
Auction Pricing Strategies
Purpose: Participate in competitive online bidding
Goal: Identify strategies to successfully manage auctions
Mechanics
 Competitors bid down price to the customer
 Pricing manager will develop a P&L and secure appropriate pricing approvals for
a pricing floor prior to the auction
 Lowest price in auction does not guarantee auction award
Determining Price/Strategy
Acquisition: Typically drive for first place position. May go in after auction with additional
incentives
Retention: Strive to win the auction, but stay a close second place in an R&D account
auction. as transition costs may be more than the price difference
Auction Tracking
Pricing should compile details from the auction
Legal review of customer’s Terms and Conditions of Auction
Careful consideration of discount assurance requirements
May require that you maintain discount of initial aggressive fixed price

16. PPS Conference Confidential 16
Competitive Intelligence
 Key sources of marketing data
– Sales makers
– Customer visits (Pricing should make these quarterly visits)
– Strategy, Brand Management, Product, and Procurement
– Competitive Intelligence Team
– Industry 3rd Party Research

17. PPS Conference Confidential 17
Pricing for Product Life Cycles
 Product Development typically targets a specific timeframe /
life cycle for key Lines of Businesses
 Why is this important?
– Understanding refresh cycles for upsells and RFPs (Request For
Proposals)
– Qualifying RFPs
– Communicating stability

18. PPS Conference Confidential 18
Pricing Techniques – Fixed Price
 Fixed price – is a negotiated price for a specified product
offering for a set period of time
– Should be negotiated on a “minimal offering”
– Customer should not have the option to downgrade from
standard
– Fixed price contracts usually take into account “switching
costs” and tend to be extremely aggressive for the first year

19. PPS Conference Confidential 19
Price Assurance
 Price Assurance is intended to give customers the
confidence that a supplier will always give them the best
price and that they will share in any cost declines that
usually occur in some industries
– IDC – Use 3rd party vendor to establish an industry list price for
a specific configuration and apply negotiated discount % to
that list price
– Quarterly price reductions – negotiate set quarterly reductions
for the life of the contract
– Cost Plus – agree to a cost plus percentage
– Cost Benchmark – agree on a 3rd party to establish a cost
benchmark and apply a negotiated mark up to that

20. PPS Conference Confidential 20
Comparing discount percentage off of list across potential partners is
not an apples to apples comparison.
The solution is to create a level playing field.
How?
Leverage an independent third party index to benchmark (discount)
off. Utilize 3rd Party (Average of top vendors)
How does this work?
1. Supplier submits the specified offering to 3rd Party
2. 3rd Party “feature adjusts” the vendors specified offering to
establish an “apples-to-apples” book / list price
3. 3rd Party creates an average list price of the vendors to
benchmark from
3rd Party Index Benchmarking

21. PPS Conference Confidential 21
Benefit to our Customers:
1. Easy to Evaluate
2. Assured good pricing for long term deals
3. Can focus on evaluating other areas of bids besides pricing
4. Eliminates Fear, Uncertainty and Doubt
Internal Benefits:
1. Level Playing Field
2. If low price leadership, competitors don’t want this
3rd Party Indexing Benefits

22. PPS Conference Confidential 22
Last Attended Pricing Conference Agenda
 10/24
– Day 1 Workshop: The Keys to Unlocking Your Organization’s Potential
 10/25
– Dr. Reed Holden’s Pricing With Confidence – author of Strategy and Tactics of
Pricing (KISS)
– Herman Simon of Simon Kutcher & Partners – co-author of Manage for Profit,
not for Market Share – great Porsche example
– Rafi Mohammed – Culture of Profit
– Andrew Rojeski – Pricing Practitioner ~ Pricing Capability Development: Driving
a Commitment to Success
– Julie Eastman – How to Standardize Your Pricing Exceptions
– Richard Lancioni, Temple University Professor
 10/26
– Bringing Science to the Art of Pricing (Waterfall Method)
– Chris Delfanzo – Commoditization: Taking a Leadership Role in Reversing the
Trend
– Laura Preslan – Pricing Theory
– Tom Jacobson - Pricing and Project Optimization (Accenture)

23. PPS Conference Confidential 23
Last Attended Pricing Conference Best Practices – Pricing Org
World Class Pricing Process Maturity Levels
1. The Firefighter (Baseline Process is Ineffective)
2. The Policeman – Gaining Control of Pricing (Internal Process in
Place)
3. The Partner – Developing Pricing Strategy (Value Processes in
Place)
4. The Artist – Optimizing Pricing (Optimization Process in Place)
5. The Master – Achieving World Class (Excellence in Execution)

24. PPS Conference Confidential 24
Pricing Conference Best Practices – Impact of Move
Revenue 100 99
COGS 60 60
SG&A 32 32
NI 8 7
= (7 - 8) / 8
12.5%
A 1% change in price can have a 12.5% reduction in profitability
1% increase in price results in 12% increase in
bottom line”
- McKinsey & Co

25. PPS Conference Confidential 25
Pricing Conference Best Practices – EVE
Economic Value Estimation
Positive (+)
Differentiated
Value
Negative (-)
Differentiated
Value
Total Economic
Value
Price parity to
competition
$1,500
$1,000

26. PPS Conference Confidential 26
Contact Info
Ritesh M. Sheth
Director, Pricing Strategy
Hoover’s, a Dun and Bradstreet Co.
Email: rsheth@hoovers.com
Office: 512.380.4879
LinkedIn: www.linkedin.com/in/thisisritesh