1. Siebel Case Study: Pricing Strategies in Software
Tania T. Goldszmidt
VP, WW Operations, Sales
Siebel Systems, Inc.
October 18, 2004

2. High Tech: Software License Pricing Drivers
Pricing primarily has to be: Scalable Flexible Enforceable
Multi-tier Order Management
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

3. Pricing Governance: People, Process, and Technology
Methods
& Practices
Technology
= Optimal Pricing & Ease of doing business

4. A Customer-Centric Pricing Process
Introduce new products and price lists, and update and maintain pricing data.
Deploy price and discount information to support price negotiations and transactions in a cost effective manner.
Price Administration
Price Planning
Price Execution
Customer
Key Messages:
Enable the entire pricing process through its lifecycle from price planning through enforcement.
Reduce revenue leakage and improve time to market
Example: Took an energy company $2M to make a price change. Multiple and disjointed pricing masters. They anticipate reducing this to $100K reducing the cost of making a change as well as getting the product with the right price to market faster than before
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
Slide #10

5. 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

6. Pricing Administration Challenges
1. Too Many Variables & Price Lists
Agility in making price changes
Consistent and accurate prices across all channels and tiers
Personalized product and prices for each relationship
Enforce discounting guidelines while enabling rapid negotiations
Strategic Imperatives
Base Price List
## price & discount changes per month !!
5 Price Lists
25 Price Lists
>Pricing Contracts
N-Tier Pricing Pyramid

7. Pricing Execution Challenges
2. Final Price Determination Process: Negotiated Pricing
Product and
Channel-specific
Information
Customer-specific
Information
Deal-specific
Information
Negotiated Terms
List Price
Regional Price
Industry Price
Partner
Price
Contract
Discounts
Customer
Discount
Product & Services
Configurations
Utility Pricing
Type of Usage
Special Approval
Pricing
Manual
Discounting
Customer
Base Price
Customer
Price
Customer
Net Price
Base Price
Transaction
Net Price

8. New Integrated Order Management Infrastructure
Order Lifecycle Management
Pricing Analytics
Mobile
Quotes
Contracts
Customer Assets
Orders
Customer Surveys
Call Center
Product & Catalog
Management
Pricing
Management
Product Selection
Product Configuration
Price Administration
Price Execution
Industry Analysis
Retail POS
Deploy Catalogs
Define Offerings
Price Planning
Price Enforcement
Contract Systems
Web
Customer Information
Billing Systems
Account
Opportunity
Contact
Partners

9. 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
Prevents rogue discounting. Ability to define rules for approvals
Benefits
Reduce revenue leakage due to rogue pricing
Reduce the Agreement negotiation cycle time.

10. 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
Try to get the latest screen shot
Benefits
Reduce Quote/Order error rates.
Reduce Quote-to-Cash cycle time.

11. 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

12. 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

13. 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

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

15. Recommended Pricing Envelopes
Discount
100%
90%
80%
70%
60%
50%
40%
30%
20%
10% 0% $0
$100K
$500K
$1.0M
$2.5M
$5.0M
$10M
$15M
Opty #1
Opty #2
Opty #3
Opty #4
Opty #5
Opty #8
Opty #6
Opty #7
Opty #9
Opty #10
Opty #11
Opty #12
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

16. 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
If a pricing manager needs more information on the pricing for a specific account, he can look at the price waterfall. This chart shows the price on the left of the chart, and a running total of all the various discounts and markups along the bottom. The price on the furthest left side is the list price (this may be the index price for the product). The invoice price is the final price the customer is charged. Additional discounts are often given to the customer – this chart helps put a value on those. The Pocket Price is the what your company receives, net of all discounts and markups. By comparing the pocket price across several customers, the pricing manager can get a true picture of which customers are the most profitable, and which destroy value. This chart also helps to quickly compare various customers to determine if there are outliers – i.e. customers who are receiving a higher than necessary discount on some terms.
Benefits:
Measure effectiveness of promotions and track contract usage.
Exxon Mobile and Marriott are using this to consolidate transactional data to determine profitability/margins.
Benefits
Determine promotion and discount effectiveness
Identify discounts eroding profits

17. 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
At this point, the pricing manager has identified the range in which he may be able to raise prices, based on the current competitive range and current positioning of his product. He now wants to see what the volume impact of each price change will be (i.e. price increases will typically cause volume to decrease). He can test the impact by inputting the price change. The model (which will be custom built and regularly updated) will use price elasticity to calculate the change in expected volume, revenue, and margin. By trying different values within the acceptable range, he can arrive at the price that will optimize profit.
Help identify profit drivers and promotions that will drive a new pricing strategy or modification of an existing one.
Benefits
Set Prices to optimize on business objectives: revenue, profit, or market share.

18. Results:
Continuous drive toward more consistent discounting practices

19. 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

20. Understanding the Customer’s 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

21. 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
Sales Org Effectiveness .8
Technical Training Effectiveness
Reseller and End User Education
Software Reliability
1.2
Consulting Services Effectiveness
1.3
Ease of Doing Business
Ease of System Administration
Ongoing Tech Support Effectiveness
1.4
Product Effectiveness
1.7
Functionality Meets Your Business Needs
Ease of Integration With Other Vendors
1.8
Ease of Using Product on Day-To-Day Basis
Speed of Product
Documentation
Ease of Product Configuration
1.9
Product Meets expectations
2.0
Ease of Product Installation
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

22. Analyze Competitors Offering and Capabilities
Partner Management
Customer Service
Campaign Mgmt.
Data Cleansing
CRM Analytics
Content Mgmt.
Inside Sales
E-Commerce
Field Service
Field Sales
Siebel Professional
SalesLogix
MSCRM
Onyx
We offer a much broader range of functionality than our competitors
Our features are also much deeper than competitors
Ultimately, Siebel is the only vendor that provides the full set of tools customers need to automate their customer-centric business
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

23. Siebel Delivers CRM for Everyone
CRM any way users prefer
CRM for any size Organization
Hosted CRM
On premise CRM
Hybrid Hosted/On Premise
Enterprises
SMBs
Workgroups
CRM for any industry
CRM for any type of user
27 Industry Solutions
1000’s of business processes
Universal Application Network
Power User
Casual Users
Mobile Users
Siebel’s Strategy is CRM for Everyone
Siebel understands that CRM needs cannot be generalized
We need to articulate what makes each of these segments unique
We need to develop solutions to address each set of needs
Enabling companies to deliver seamless and superior customer experiences by extending CRM to everyone in their organizations and partner ecosystems

24. Key Insights from Analysis
Depth in Focused Areas
Sophisticated requirements
SMB deployment is narrower in scope than enterprise
Usability drives ROI
5 M SMBs have diverse needs
Solutions must grow with business
Diversity Requires Flexibility
Trusted Advice
Local presence
Domain Expertise
Track record for Success
Thin margins
Limited cash supply
Limited Room For Error
We’ve been working with SMBs in depth for the past year and have learned what makes SMBs different than large enterprises
SMBs tend to have more focused CRM requirements than do large enterprises. They need deep functionality in targeted areas. However, deep functionality can’t come at the expense of usability
Given the size and diversity of this segment, it is impossible to address all SMB needs with a single product. Customers need granularity in terms of the CRM functionality they deploy. Also, since SMB businesses evolve rapidly, customers need to know that their CRM investment is extensible and won’t become obsolete as their needs grow
SMBs have limited ability to absorb a failed CRM implementation. The typically have limited cash in the bank and operate on thinner margins than their larger competitors (do to economies of scale)
CRM is often the biggest application deployment SMBs have undergone. They often seek to shift the risks associated with larger application deployments over to partners who are better qualified to successfully manage the project

25. CRM Professional Edition—Exactly What SMBs Need
Expanded Product
35 new or enhanced modules
Horizontal, FINS, CME, Life Sci. and Consumer Goods products
80% improvement in task completion
Flexible Packaging
Create customer bundles
Purchase additional modules a la carte as needs evolve
Premiere Partnerships
Leading SMB resellers in U.S.
12 Point Certification Process
CRM Domain Expertise
Horizontal-$995/user
Vertical-$1095/user
$54K Implementation
Pre-negotiated financing rates
Affordable Pricing
CRM Professional Edition addresses the needs of SMBs
An expanded product coupled with key usability enhancements allows customers to deploy with less customization and to achieve better adoption.
Flexible packaging allows customers to deploy CRM in bite-sized pieces and then add to the deployment over time. This reduces the upfront implementation cost and complexity and gives customers exactly what they need.
Affordable pricing, fixed implementation and financing options allow customers to manage the costs and time associated with CRM implementation
Partnerships with the best resellers and integrators allows SMBs to work with experts who know the CRM space and have proven that they can implement Siebel
Enabling companies to deliver seamless and superior customer experiences by extending CRM to small and medium sized businesses and partner ecosystems

26. 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
When customers purchase CRM Professional Edition, we allow them to choose a base application and then add additional, add-on modules to it
Add-on modules are included in the base price
Once customers have deployed their application, they can purchase additional modules for an incremental price
By allowing customers to add the modules of their choice to the base application, we can provide customers with custom bundles of functionality that are specific to the customers’ business requirements. Customers can be confident that they are not paying for superfluous functionality. Additionally, they can know that as their business grows, the solution will grow with them
Base Application

27. 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 Siebel’s pre-negotiated rates
Loan durations range from months
Convenience of dealing with a single vendor
Partnerships with premiere financing companies
Siebel has worked very hard to ensure that the CRM Professional Edition product is price competitive and affordable
In addition to a low base price, Professional Edition offers a fixed price, fixed time implementation to ensure that customers know exactly how much it will cost to deploy CRM and how long it will take
For those who wish to finance their CRM purchase, Siebel offers competitive financing options through some of the leading financing companies. Typically the rates that Siebel offers are lower than those that companies can obtain by themselves through banks and with less hassle. This is because banks are less familiar with CRM or how to collateralize a CRM loan. Financing allows companies to spread implementation and software payments over the time in which the incremental benefits of CRM will be realized
Financing

28. $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
Many customers have expressed an interest in shifting the risk of a CRM implementation to those who are best equipped to mitigate this risk
Siebel has worked with some of the leading SMB integrators to create a fixed price, fixed time implementation package
This package includes the deployment of up to 200 users of Sales, Service or Call Center for a price of $54K. Our partners will do everything from drafting a Project Charter to setting up users and administrators
We can deliver a very low fixed price implementation because our vanilla application is optimized for SMBs and requires minimal customization
We are also working with the most efficient and effective integrators who have a vast amount of experience with CRM deployments
Total Cost
$104,000
$154,000
$2,100
$1,540
Cost Per User

29. 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

30. Siebel Case Study: Tania T. Goldszmidt VP, WW Operations, Sales
Siebel Systems, Inc.
October 18, 2004