Join the Revenue Revolution: CPQ is the Key to Maximizing Customer Life Time Value October 2014 Romit Dey Lead to Cash/ US Practice Leader [email protected]

Join the Revenue Revolution: CPQ is the Key to Maximizing Customer Life Time Value

October 2014

Romit DeyLead to Cash/ US Practice [email protected]

Betty WatsonCPQ Practice [email protected]

2PwC

Agenda

01

02

03

04

New Business Models: a key Revenue Driver

Implications for Lead to Cash (L2C)

Integrated CPQ for Success

A single CPQ solution for all RTM for the entire Life Cycle

3PwC

Agenda

01

02

03

04





4PwC

CEO Agenda Highlight: Customer Experience

… customer demand is the first factor influencing change in strategy…

… and over half are transforming their businesses

Cost reduce existing processes

New products / services in existing business models

New business models

Change existing products / services

0% 20% 40% 60% 80%

56%

55%

66%

69%

50%

57%

57%

71%

North America Global

Changes in regulation

Competitive threats

Economic growth or uncertainty

Customer demand

0% 20% 40% 60% 80%

41%

56%

66%

65%

45%

72%

73%

76%

North America Global

CEOs are seeking growth by transforming to meet customer demand

Source: PwC 14th and 15th Annual Global CEO Surveys

15%

34%

48%

4%

Improve Stay the Same Decline

Don't Know

82% of CEOs expect the global economy to stay the same or

decline

Key takeaways:

Addressing new & emerging customer expectations successfully is critical New products and services being developed to meet customer needs Agility and flexibility drive competitiveness

5PwC

Transforming the Customer Experience: New Business Models

Continuously Evolving Customer Value Propositions

What (multiplicity of offerings)

Combined propositions - hardware, software, content, services and financingMicro-segmentation for tailored offerings

How (choices and options)

Differentiating between sophisticated buyers vs. first-time purchasersConfigurable options and 1-click – mass customization at your fingertipsMicro-transactions

When and where

Direct, retail POS & credit cardseCommerce & mCommerce In-app purchases & mobile paymentsSuperior and consistent User Experience across devices

Companies are constantly striving to create compelling experiences through changes in every aspect of the shopping/ buying/ selling cycle

CPQ: Maximizing Customer Life time Value for all RTM

6PwC

New Business Models

Business models evolve quickly as new offerings are developed organically or acquired to drive growth across new and existing customer segments and global markets

Productwith Experience

Services/Experiencewith Product

IntellectualProperty

1

Product

2 5

Services

6

Productwith Services

3 4

Experience

7

How are your business models and revenue sources evolving?


7PwC

Agenda

01

02



03

04





Rise ofCustomer’s Voice

CONNECT WITH CUSTOMERSThe increasing importance of the customers voice heavily impacts the overall brand health of a company. Customers are no longer faceless data (cookies, email addresses), they are real people and more connected than ever.

Fractured Experiences

The advent of new channels has created an inconsistent and disconnected experience across customer interaction points. Consumers today expect enterprises to offer a seamless experience across all channels. They can execute research in one channel, purchase in another, and get post-purchase support in still another.

Information Overload

It is estimated that four exabytes (1018) of unique information will be generated this year. Increasing competitive and consumer pressure requires companies to understand and act on info to enable real-time behavioral insights for decisions and adaptation.

Mobility and Pervasive Presence

Access and creation of information anywhere and anytime has an impact on traditional business and revenue models. With the development and deployment of mobile devices such as smart phones, tablets, and mobile applications, mobile users now have the ability to access and create information and entertainment anytime and anywhere.

ACCESS ANYWHERE

ENABLE INSIGHTS

SEAMLESS ACROSS CHANNELS

8

9PwC

L2C imperative: Delivering a seamless customer experience while meeting key business objectivesUnified, seamless customer experience along with revenue acceleration and enhanced margins

• Simplified interactions across the buying and usage lifecycle• Self-service for order and entitlement status• Seamless & automated processes for minimal response time through ordering

& fulfillment

• Bundled offerings comprising combination of H/W, S/W, services and/or content, tailored offerings for target segments

• Intelligence-based offering recommendations, Try & Buy, Social Selling• Loyalty-based offerings• Combination of revenue streams initiated through one-time transactions• Insights through customer life cycle via entitlements and warranties• Early notification of service dues / expiration

• No-touch vs. high-touch – balancing self-service and bespoke service • All products offered through customer preferred channels• Flexible transaction capability via direct (web & mobile) and channel• Accessible customer and partner data for visibility and analytics

Ease of doing

business

Customer-centric

offerings & enriched

relationships

Seamless flexible

transactions

PwC

New and evolving business models

• Shifting to XaaS/ service-based models requiring different forms of selling & go-to-market offerings, followed by delivery & ongoing transactions

Seamless customer and user experience

• Definition and delivery of a breakthrough customer experience, while managing pricing and margin pressures

Global regulatory complexities

• Operating in an increasingly complex global regulatory environment often supported by disparate systems

Productwith Experience

Services/Experiencewith Product

IntellectualProperty

1

Product

2 5

Services

6

Productwith Services

3 4

Experience

7Seamless Customer/Partner Experience in L2C Processes

Solution offers

Lead & Opportunity

Mgt

Configuration, Pricing &

QuotingContracts Order Mgmt

& Fulfillment

Billing, Invoicing & Collections

Revenue Recognition

Entitlements (Incl Assets &

Benefits)

10

L2C transformation: Significant complexities, with high business impact


11PwC

Complexity Drivers for L2C

Business Models

Dimensions

ProductPerpetual Licensing

Term Licensing

Subscription

Consumption or Usage

Value-Based

Open Source

Hybrid EcosystemMarketpla

ces

Ownership

Rights

(Time)

Perpetuity /

Unlimited

Perpetuity /

UnlimitedLimited Limited

Perpetuity /

Unlimited

Perpetuity /

Unlimited

Perpetuity /

UnlimitedLimited Limited Limited

Ownership

Rights (Access)Unlimited Unlimited Unlimited Limited Limited Limited Unlimited Limited Unlimited Limited

Delivery Pattern Per UnitPer User

(License)

Per User

(License)

Per User

(Subscriber)

Per Metric /

Transaction

Per Metric /

Per Feature

Per Metric /

Transaction

Per User

(Subscriber) /

Metric

Per User

(Subscriber)

Per Metric /

Transaction

Payment Pattern Up-Front Up-Front Periodic Periodic Per Use Per Use NoneUp-Front

and Periodic Periodic

Up-Front

and Periodic

Revenue Pattern Up-Front Up-Front Up-Front or

Ratable Ratable Variable Variable Variable

Ratable and

VariableRatable

Up-Front

or Ratable

New business models drive new operating needs; old business models continue to co-exist and add to overall complexity in operations

ILLUSTRATIVE

Traditional Emerging


12PwC

Example of Bundled Offerings: Combining hardware, software & services

• Pure (hard) bundling occurs when customers can only purchase an entire bundle

• Mixed (soft) bundling occurs when customers can choose between purchasing the entire bundle or one of the separate parts of the bundle.

Bundling makes sense when

1. Customer acquisition costs are high

2. Economies of scope in distribution.

3. Low marginal cost of bundling multiple products

4. Bundling can make prices lower and offer competitive differentiation

5. Focus is on driving up ARPU

Customer exposure and risk

Governance and x-functional coordination needs

TTM issues with complexity in offering structure and pricing


PwC 13

Successful transformation with value realization requires orchestrated changes across multiple dimensions

Key Enablers (Solutions & Technologies, Data, Organization)

Ownership and Governance

Core L2C Operations & Architecture

GTM ModelOffering Structure

1

2

3


14PwC

Key Enablers (Solutions & Technologies, Data, Organization)

Ownership and Governance

Core L2C Operations & Architecture

GTM ModelOffering Structure

I. GTM strategy alignment with offering definition & key elements

II. Revenue Models & Pricing models

III. Core configurations and bundling possibilities

IV. All Routes to market

V. Revenue Recognition & Tax implications, GTC

VI. Business value assessment

I. Customer experience design

II. Business Process Architecture

III. E2E solution architecture design aligned to GTM offerings

IV. Key capabilities model design (market differentiating, technical & operational)

V. Technology solution implementation & integration

VI. Integrated master data management

VII. L2C customer analytics

L2C transformation: Enabling new business models


15PwC

Agenda

03Integrated CPQ for Success

02

04




01New Business Models: a key Revenue Driver


16PwC

Analysts Identify Configuration as Challenging, but Most Impactful to Positive Customer Experience

Customer Experience

Pro

du

cti

vity

Challenging

Relatively Easy

Moderate

Source: Gartner

PwC

OnlineStore

Direct Sales

1-Tier Channels

Multi-Tier Channels

Demand Generation & Lead Mgmt

Opportunity Management

Configuration, Pricing & Quoting Contracts

Innovations

Offerings

Accelerating Time to Market:

17

End Customers

Distribution

Resellers

Solutions Creation


18PwC

Best-in-class integrated CPQ successfully addresses strategic goals and operational expectations

Effective linkages between GTM propositions (offerings) from Marketing/ Product Management with Sales and seamless alignment with downstream Order Processing, Billing, Invoice to Cash operations

Flexible product hierarchy and offering structures for rapid bundle creation and setups; unique pricing models for one-time purchase and subscription models

New offerings/ propositions for new models, targeted customer segments and unique routes to market; analytics and insights for buying patterns and LCV

1

2

3


19PwC

Integrated CPQ: From accelerating transaction flows to enabling new revenue models

• New and evolving business models

• Global regulatory complexities

• Seamless customer and user experience

Key Considerations

• XaaS

• Global Entities• Multiple countries• Changing Rev Rec

needs

• Instant On• 24/7

Trends

• Through Organic Growth or M&A

• Corresponding Operating Models for Hybrid Business

• Centralized vs. federated applications

• Higher Degree of automation with country specific requirements

• User Experience• Mobile• Amazon-like

personalization

Transformation Path

• Offering structure and reduced time to market

• Analytics & insights• Enabling downstream

business processes• Country-specific

offerings and pricing models

• Flexibility in Go-To-Market thru framework and Governance

• Self-service and expert user options

• Mass customizations thru micro segments

Role of CPQ


20PwC

Integrated CPQ: From accelerating transaction flows to increasing Customer Lifetime Value (CLV)

Illustrative CLV0%

20%

40%

60%

80%

100%

120%

Base Profit

Increased Purchases

Price Premium

Renewals, Refreshes & Referrals

Frictionless transactions and reducing administrative overhead in errors and canceled orders; self-service, expert user and assisted transaction flows; federated offering catalog

Offerings defined by routes to market with targeted pricing models (enabled by guided selling), enhanced deal margins (with profitability analysis) and price-point trend analysis

Analytics and insights on buying patterns to drive renewals vs. refresh decisions; product features adoption and usage feedback loop to Product Management (R&D allocation and features development) , proactive targeting by Sales & Customer Success (reduced churn rates & retention costs)

?

50% or more of CLV for an established customer lies beyond the initial purchase transaction; this increases significantly with a transition to XaaS


PwC

OnlineStore

Direct Sales

1-Tier Channels

Multi-Tier Channels

Entitlement & Installed Base Revenue Recognition Billing, Invoicing &

Collections Order Mgmt & Fulfillment




Ord

ers

Ord

ers

Ren

ew

als

Innovations

Offerings

A single engine that serves all RTM and the entire Customer Life Cycle:

21

End Customers

Distribution

Resellers

Solutions Creation


22PwC

Integrated CPQ: Flexible product structure & offering definition

Product Characteristics Offering Creation Quote to Order Order to Fulfill

Invoicing & Revenue

Recognition

Product Master DataTechnical Attributes

Pricing Master DataUsage Attributes

Customer Master DataContracts Master Data

Entitlement Master Data Legal Entity & Tax Structure

Product Creation Rules

Price and Bundle Rules

Order Management O2F RulesHolistic entitlements view

Financial ReportingRevenue Recognition

Release Management & Setup

IP created by Product Management and Engineering

GTM propositions by Marketing & Sales

Item management and updates by Operations

Sustained ownership experience

Robust reporting, financial integrity

Pro

cess

Data

Accelerated Time To Market (TTM), with cross-functional collaboration to drive Product-Offering-Item definition and setup


23PwC

Integrated CPQ: Enabling downstream operations

Defined CPQ policies and processes along with robust offering structures enable the alignment of the front-end buying experience with downstream operations (billing, invoicing & payments)

Define Components

Solution Offers

Assemble Solutions

Price Solutions

Analyze Solutions

Manage Price-books and Catalogues

Obtain Necessary Approvals

Manage VLAs and ELAs

Contracts

Manage Single Order Transactions

Manage Partner Contracts

Manage Volume Buying Programs

Manage Leads

Leads & Opportunities Management

Register Deals (Channel Partner)

Manage Orders

Order Mgmt

Provisioning

Manage Billing

Billing & Invoicing

Manage Collections

Manage Commissions

Manage Revenue Recognition

Create Entitlements

Entitlements (Includes Assets& Benefits)

Update Entitlements

Track Entitlements

Retire Entitlements

Manage Opportunities

Configuration, Pricing & Quoting

Create Quote

ConvertQuote to Order(s)

Create Configuration

Apply Pricing

Apply Negotiated Contract

Apply Concessions

Define Components

Solution Offers

Assemble Solutions

Price Solutions

Analyze Solutions

Manage Price-books and Catalogues

Obtain Necessary Approvals

Manage VLAs and ELAs

Contracts

Manage Single Order Transactions

Manage Partner Contracts

Manage Volume Buying Programs

Manage Leads

Leads & Opportunities Management

Register Deals (Channel Partner)

Manage Orders

Order Mgmt

Provisioning

Manage Billing

Billing & Invoicing

Manage Collections

Manage Commissions

Manage Revenue Recognition

Create Entitlements

Entitlements (Includes Assets& Benefits)

Update Entitlements

Track Entitlements

Retire Entitlements

Manage Opportunities

Configuration, Pricing & Quoting

Create Quote

ConvertQuote to Order(s)

Create Configuration

Apply Pricing

Apply Negotiated Contract

Apply Concessions

CPQ is used to define Offering Characteristics, enable Sales & Channel in the L2C cycle, and directly impact overall business velocity, margin, and customer satisfaction

• CPQ processes must be accessible internally (sales and product management) and externally (by direct customers and channel partners)

• Robust product structure and integration with the underlying master data enable quick response in set-up as part of NPI activities as well as within the transactional processes

• Customer/Partner experience is enhanced by providing the right product at the right time for the right price


24PwC

Integrated CPQ: Enabling downstream operations

Business Growth:Scalability & TTM

Operational Flexibility:Agility

Improve Productivity:Degree of Automation

Seamless customer experience

Partner self service Customer-centric solutions Segmented order flow

Guided sellingValid configurations & bundles

Automated deal approval

Exceptions approval workflow

Sales contracts integrationPrice waterfall with discount levers

Upstream and downstream integration

Attribute-based SKUsIntegrated entitlement management system

Re-usable configurationsMulti-tier offers with pricing

Bundling

Automated customer validation

Quote lifecycle Attribute-based pricing

Optimized business processes and enabling solution architecture for targeted outcomes


25PwC

Level 1

Adhoc

Level 2

Evolving

Level 3

Integrated Excellence

Level 4

World Class

CPQ Maturity

Solu

tion

Matu

rity

Integrated CPQ: Illustrative maturity curve

• Standalone CPQ solution, usually excel based, distributed by email

• BU defined multiple, often inconsistent workflows and processes for quoting and approvals

• Ad-hoc set of analytics tracked and measured

• Difficult VSOE calculations due to lack of quoting details

• Offering & Pricing rules are imbedded in CPQ and integrated with costs, customer, contract, and entitlements master data

• Granular pricing, margin, and discounting visibility for all pricing levers

• Self-serve channel partner portal that integrates with deal registration

• CPQ integrated with ERP with Order conversion and order status write back to Sales/Opportunities

• Renewals are enabled by the CPQ engine for all routes to market with automatic VSOE calculation

• Defined set of analytics captured and reported on a standard cadence

• Solution based guided selling that drives incremental revenue

• Full visibility into the quoting lifecycle across all channels

• Co-branded two-tier partner portal

• Integration with Pricing Analytics for optimized pricing

• Integration with Sales Compensation that drives higher revenue and margin

• Automated approval workflows for pricing, contract terms, or offering exception as part of the deal management process

• Quote details that drive supply chain planning , revenue & margin projection

• Business managed CPQ rules

• On demand analytics available across functions

• Documented processes across product, pricing, sales and channel enablement

• CPQ solution setup to capture and store transaction data for analytics

• CPQ for new orders integrated with opportunity management for Sales; assisted CPQ for Channel partners

• Mobile enabled during sales calls

• IT maintained CPQ rules based on input from Product Managers

• Defined workflows within the quoting and approval process

• Minimal margin analysis and pricing analytics to influence pricing strategy


26PwC

Incremental RevenueLow High

Cost

s (O

pera

tion

& S

ale

s)

High

Integrated CPQ: Adoption & impact

Sales Enablement - Sales

Productivity & Quote to Order

velocity

Channel Enablement -

Channel Operations

Efficiencies & Channel Revenue

Renewal Quoting - Lower Sales Costs;

higher Renewal Rate

Solution Based Guided Selling -

Incremental Revenue

Analytics and Insights

(feedback loop for product management, customer service and

supply chain)

Identified business value drivers:

5

1

2

3

4


27PwC

Integrated CPQ: Realizing the value

Level-1: Changes in core transaction flows; associated benefits in streamlined processes – response times and resource productivity gains

Level-2: Realizing the promise of value drivers as designed and deployed across products, customer segments and routes to market (e.g. guided selling, configuration analytics)

Level-3: Transformational changes across multiple functions enabling new business models and separate functional agendas (e.g. enterprise sales effectiveness, sales productivity, order management)

Time to value is dependent on extent of usage and adoption of business operating policies and processes along with CPQ tools/

integrated system


PwC

Agenda

28

04A single CPQ solution for all RTM for the entire Life Cycle

01New Business Models: a key Revenue Driver

02Implications for Lead to Cash (L2C)

03Integrated CPQ for Success


PwC

OnlineStore

Direct Sales

1-Tier Channels

Multi-Tier Channels

Entitlement & Installed Base Revenue Recognition Billing, Invoicing &

Collections Order Mgmt & Fulfillment




Ord

ers

Ord

ers

Ren

ew

als

Innovations

Offerings

Maximizing Customer Lifetime Value through all RTM:

29

The gift that keeps on giving: + + + =

1

End Customers

Distribution

Resellers

Solutions Creation

1

2

2

3

3

4

4CPQ: Maximizing Customer Life time Value for all RTM

30PwC

Thank you!

www.pwc.com

Documents

Join the Revenue Revolution: CPQ is the Key to Maximizing Customer Life Time Value October 2014 Romit Dey Lead to Cash/ US Practice Leader [email protected]