TEC’s in-depth 2011 article not only described the opportunities inherent in the business to business (B2B) pricing software market, but also ascertained that the value of this budding software category has yet to become universally known and appreciated. Sensing the opportunity, LeveragePoint is the latest market newcomer with a fresh approach to deal pricing negotiations.
LeveragePoint was established in January 2009 as a spinout from Monitor Group, a Cambridge, Massachusetts, United States (US) strategy consulting firm, itself a spinout from Harvard Business School. The company was created to build a software platform for pricing and deal optimization. The team behind LeveragePoint had been the eMonitor business unit, and one of its co-founders was Vice President of online products at Harvard Business School Publishing.
eMonitor was created in 2004 to develop and deliver online versions of Monitor’s marketing frameworks. Monitor Group itself had acquired the Strategic Pricing Group (SPG) in 2005. SPG, led by pricing thought leader Tom Nagle, was a consulting firm providing pricing strategy consulting and training services. The well-known Economic Value Estimation™ (EVE) framework was developed by Nagle and his colleagues, as there were many other standard tools used in pricing. Nagle is the lead author of The Strategy and Tactics of Pricing, the standard textbook on pricing strategy and tactics. He leads LeveragePoint’s board of advisors and his expertise is embedded in LeveragePoint’s online product. In addition, his coaching accompanies some of the online support integrated in the tools.
Enter Value-Based Pricing
LeveragePoint entered the market by focusing on Value-Based Pricing, which uses EVE models to link price to the differentiated value provided by a solution (see Figure 1). Research has found that value-based pricing leads to an average 24 percent increase in operating margin over the industry average (see John Hogan in 2008) and it is widely regarded as the best practice in B2B pricing. However, recent research by Stephan Liozu and his collaborators has shown that relatively few companies have adopted value-based pricing to date and that there is a large open market opportunity (see Liozu et al. in 2011) .
Working with customers, LeveragePoint found that the key to successful value-based pricing was the sales force. Sales staff can have a jaded view of pricing departments and science, and sometimes facetiously and resentfully refers to pricing as “the revenue prevention division.” But value-based pricing is different. Rather than telling sales (and the customer) what the price should be, it explains the value to the customer in terms of the customer’s own business model (see Figure 1).
Figure 1: Differentiated Value Modeled Using EVE (Screenshot)
Pricing as a Collaborative (Social) Effort
This interactive approach led LeveragePoint to move from pure pricing tools to a larger space where pricing supports internal collaboration between the Product Management, Marketing, Pricing, and Sales departments, with all of these interactions based on conversations with customers. The vendor responded to its customers’ requirements by adding modules for Price Setting, Value Communication for Marketing (Value Propositions), and Value Communications for Sales (Unique Value Propositions for specific customers). For illustration, see Figure 2 below.
Figure 2: Pricing Integrates Business Functions and Focuses Attention on the Customer
Using value-based pricing and value-based sales, companies can gather a great deal of data about their customers and competitors. One important theme for the platform has been to provide data search and integration functions so that information can be shared easily. Collaboration is critical to value-based pricing and value-based selling, so the software should be able to share, comment on, and track changes to value models, prices, and value propositions over the Internet, and it should provide the fruits of collaboration even when “collaboration” is not the norm between the sales and marketing functions of a company.
What LeveragePoint Offers
At this time, LeveragePoint has only one offering, the Value Based Pricing Platform. The platform has the following four user modules:
Moreover, the platform has an administration module and a set of underlying functions that are shared across modules. The Administration module enables account management, group management, sharing privileges, and management of Value Driver Libraries and Data Libraries. Common Functionality provides the following functions that are available across multiple modules:
LeveragePoint’s Value Prop (No Pun Intended)
At this stage, LeveragePoint is the only company with a software platform that supports value-based pricing and value-based sales. In order to support these best practices the software must be able to model the impact of a solution on the customer’s business model as compared to the competition. This requires a workflow and a data model that supports the creation of a value model and the integration of data about customers and competitors into that model. To go further and support value-based selling, one must provide value-based selling tools to the sales force. This is an important focus for LeveragePoint.
Needless to say, LeveragePoint provides a very different approach to pricing software. Conventional, so-called “big iron” pricing vendors build up from transactional history data, and therefore require extensive data normalization and integration work before they can begin to deliver value (assuming that such data actually exists). Complex “black box” pricing science is applied to this data, and price waterfalls and other such tools are used to present the data. Pricing guidance is then provided (or dictated, rather) to sales (see Figure 3).
Figure 3: The Conventional Approach to Pricing Software
In contrast, LeveragePoint builds out from an understanding of differentiated value and pricing strategy. The system generates its own data through use, and guides the user to input the appropriate information about customers, competitors, and external variables that impact both value and price capture. Its goal is to enable the sales force to connect price to value and to use these in negotiating the best deal for both parties (see Figure 4).
Figure 4: The LeveragePoint Approach to Pricing Software
LeveragePoint’s Current State of Affairs
The vendor currently has 10 customers, which range from small companies with only two users to large international companies with more than 200 users across multiple business functions. To date, most of LeveragePoint subscribers have more than US$200 million in revenues and several are multi-billion dollar companies.
Early adopters have tended to come from the specialty chemical industry and the vendor’s development partner was WR Grace, which has a large specialty chemical operation. Approximately 60 percent of LeveragePoint customers by company and 80 percent of customers by number of users are in this industry. The company also has customers in the software and discrete manufacturing sectors, and expects to grow its customer base in these industries rapidly in 2012.
LeveragePoint’s main office is in Cambridge, Massachusetts and the company also has staff in Austin, Texas and Vancouver, Canada. Customers are based in the US with one in the UK and one in Canada, but the vendor supports the international operations of these companies and has users on all continents including Brazil, China, and India. The LeveragePoint Platform has full Unicode compatibility and text can be entered in any language supported by the browser. The vendor provides support for converting across currencies and units of measurement. The user interface (UI), on-line learning support, and pre-packaged value driver libraries and data libraries are all only in English at this time.
LeveragePoint does not work with large systems integrators (SI’s), as there is no traditional integration, data normalization, or installation work required (as in the case of big iron pricing solutions). This is a software as a service (SaaS) platform that works out of the box. But the vendor does work with a number of smaller firms such as Value Management Advisors who support customers in the following ways:
Currently, LeveragePoint does all configuration and integration work internally, but it expects to form partnerships with other companies to do this in the future. The work is business and marketing centric and not IT centric, so LeveragePoint is looking to partner with firms that have expertise in pricing and sales enablement, rather than IT. Building relationships with SaaS product configurators, such as BigMachines and Cameleon Software, is on the company’s to-do list for next year. LeveragePoint is one of the first companies to complete the new (June 2011) SOC-2 security certification (Service Organization Controls over Security, Confidentiality, Processing Integrity, Availability, and Privacy) and to date is the only company in the pricing space to have done so.
Part 2 of this series will conclude with an in-depth discussion with LeveragePoint’s knowledgeable CEO, Steven Forth. Until then, your comments and opinions with regards to typical B2B pricing issues and solutions are more than welcome. I would certainly be interested in your experiences with various pricing software tools in general and with LeveragePoint in particular.
Thank You PJ. Our underlying goal with LeveragePoint is to enhance the long-term competitiveness of the economy by making sure that companies can capture the value they create through innovation into prices.