Crafting Value-proposition

Pre-approach (Lead Management) Sales (Negotiation Management) Post-Sales (Relationship Management)

1
IT Sales Process

2
Lead qualification

• Framework-based (Qualitative Judgement based)

• Analytical based on Historical data

3
Framework Based Assessment
Key Criteria Evidences
Strategic 1. Need to lead in Europe High
Imperative 2. Largest customer in Europe and significant scope of additional revenue
3. Germany is the largest market
4. In case of failure, the plant would remain underutilized.

Need 1. Customer has compelling reason High

2. Fund is available
3. Cost of not doing is high, as training would get impacted
4. The training needs are prioritized

Impact 1. The solution is not for core processes Medium

2. Higher specification on reliability and others would not be required
3. Would be used for 4/5 years, would be involved in large no of trainings

Relationship 1. Strong existing relationship High

2. Customer values the quality of the vendor and ready to pay premium
3. Successfully delivered past projects leading to high customer satisfaction

Delivery 1. Past success with product and installation quality Medium

Capability 2. Plant would make it easier
3. Medium level of competition, one of the competitor is perceived as strong
4. Initial disadvantage due to import duty
4
Other Framework for lead qualification

• BANT (Budget, Authority, Need and Timeline); developed by IBM

To qualify an opportunity,
 the customer should have a need for your product or service
 have the budget and authority to purchase your product and infrastructure to use it
 your product or service solves their pain points and should be high in their priority.

• Lead scoring for lead generated through digital marketing

5
 Application of digital technologies in Lead Management Phase

• Lead nurturing with appropriate content:

• Customer attention is scarce

• Lead nurturing allows to develop relationships with potential or actual buyers, even before the
sellers meet them
• Listen to the need of your customers and facilitate information.
• Automated and personalized sales content sequences across relevant communication channels
• It is not like cold calling, Make them sales ready.

6
 Application of digital technologies in Lead Management Phase

• Lead information enrichment: Technologies to enriching leads with rich customer information

Once the prospect list is available, marketing and inside sales team needs to do enrichment, which is most interesting. There are
lots of tech tools and databases available, which uses people’s activity on the internet to give me data points that I can use to call
them, email them and so on right? Social media platforms are a great ally, because people tend to share information about
themselves voluntarily or involuntarily, you know, subconsciously in some cases which give me a lot of things I have certain
websites, certain tools which gives me everything I need to know to contact a person and this is about the person. So, that’s level
1. So, our team can find out Mr. X’s home location, home location as in not your residence, but as in which city do you live in,
where do you work? How long have you been there? Where did you study? What previous roles did you have before you arrived
into this current role? What’s your phone number? What’s your official email id? In some cases there is some outdated information
there, but yeah, okay, that’s fine, we can do a Pareto, 80% of the time we will get it right. So, this is basic information. So, I know
everything I need to know, how to contact Mr. X right? . The premium services from LinkedIn even give us idea about the other
important players for that opportunity (R22)

7
 Bid Team Formation
Business Development Lead Architect /
Solution
Manager / Opportunity Business
Manager
Owner Consultant

Resource Manager Bid Manager Risk Manager

Pricer Approvers Legal

Composition of Bid Team

Multi-functional
Only exists for the opportunity
Different resources are on-boarded at different time 8
Crafting Value-proposition

9
Value Propositions or Value Theme

• A consolidated stack of benefit , instead of a large

number of isolated features and benefits.
• The value proposition is also designed in a way to
convey uniqueness of the provider’s offering to deliver
desired business outcome.
• A well-defined value proposition can be also used for
measurement of value during value delivery phase,
other than its importance during sales phase.

10
 Customer Value Propositions

Value Favorable
All Benefits Resonating Focus
Proposition: Points-of-Difference
Consist of: The one or two points-of-
All benefits All favorable points-of- difference (and, perhaps, a
customers difference a market offering point-of-parity) whose
receive from a has relative to the next-best improvement will deliver the
market offering alternative greatest value to the customer
for the foreseeable future
Answers the “Why should our “Why should our firm purchase “What is most worthwhile for
customer firm purchase your offering instead of your our firm to keep in mind about
question: your offering?” competitor’s?” your offering?”

Requires: Knowledge of how own market

Knowledge of Knowledge of own market
offering delivers superior value
own market offering and next best
to customers, compared to
offering alternative offering
next-best-alterative offering
Has the
Requires customer value
potential Benefit assertion Value presumption
research
pitfall:
Value Proposition Designing

• Not to focus more than 5 important themes of

benefits - too many would reduce the cohesive of
your value proposition
• Not to base themes on what we want to sell
• Not to Exaggerate or provide benefits we cannot
support
• Consider individual stakeholder needs (multiple
stakeholder)
• Demonstrate that we understand what is
important to client and what the real problem is
Solution Development

1
3
Solution Components

Technical Solution Commercial Solution

Scope/Size
Pricing
Value Proposition
Contract Type
Phasing, Timing
and Deliverables Financing
Governance and
Risk Mitigation
Solution Commercial Risk Reward Sharing
Design Design
Responsibility matrix T&Cs
Solutions, Assets
and Best Practices Legal

Demos, References and

Solution Sponsorship

Vendors and Partners

14
Solution:

Solution = “the answer to my specific problem”

OR

Solution= “the bundle of products and services I want to sell you.”

Management guru Peter Drucker made this observation nearly a half-century ago:

“What the customer buys and considers value is never a product. It is always utility, that is, what a product or service does
for him.”
Customers define their desired outcomes in different ways, to get a ‘Job’ done.

• financial metrics (e.g., revenue growth and profits),

• delivering a better experience to their buyers (e.g., increase same store sell by 10% over the 12 months after implementation)

• fostering a more vibrant internal culture (e.g., improve employee happiness index by 2% over 12 months),

• achieving efficiencies (e.g., transportation costs reduction by 5% in 18 months), or

• revamping the company’s reputation (e.g., enhance brand ranking by 5 positions in next 24 months).

• In each above scenario or a combination, often the desired outcomes represent leading indicators of that customer’s future
business performance
 Client’s context ( From RFP and client discussions)
• Polkomtel is the second largest mobile service operator in Poland
• Currently Polkomtel has a limited portfolio of Value Added Services and introducing new ones requires long development:
e.g.
• Personalization:
• Czasoumilacz (Ringback tones)
• Dzwonki (ring tones)
• Multimedia
• Muzodajnia (music service)
• Video / Movies / TV
• Entertainment
• Games
• Social
• Polish instant messaging service)
• Facebook packages
• Infotainment and localization
• Gdzie Jest Dziecko (Where is my child)
• Localization services
• Finance and insurance
• Mobile payments
• Safe travels
• Partner services
• Premium rate off-portal services
• Mobile Adverts
Client’s Objective

• To exploit Polkomtel’s fast networks and generate additional ARPU, it will be necessary to have
a rich portfolio of content and applications and therefore a large number of suppliers both
external and from within the group

• To enable this, Polkomtel needs an infrastructure to enable new partners to be bought on

quickly, and new services launched quickly
Scope - Software Components

 Subscription Manager

 Campaign Manager

 Product Bundling

 Partner Portal and Partner Management Layer

 Analytics and Reporting

8
Business Architecture
Access Channels

SMS App IVR Web

Service management
Product Subscription Campaign
Bundling management Manager

Partner Onboarding
Advertising On- Partner Self
Partner On- Content On-
boarding Service
boarding boarding
Partner Content AdvertisingExtend API Sharing
Lifecycle mgmt Lifecycle mgmt Lifecycle mgmt
• Multichannel Portal
• Advanced Advertisement Engine
Partner Settlement
• Device Manager
Reporting and Analytics
Scope - Services

Consulting services on new product development

Business requirement
Impact analysis on business processes
Architecture and Design
Project management
Coding and systems integration
Systems Integration and user acceptance testing
Handover to operation team

8
Value Propositions
KPI
Winning Propositions

 No of days to launch a service

 Rapid Time-to-Market for
services  Amount of revenue coming from
new services
 Partnering with 3rd Parties
for a broader range of  No of partners
content, applications
innovation
 % of Revenue from bundled
services
 Targeted Campaign, Promotion,
Offer
 Campaign efficiency
Understanding Basic Concepts
 Project Plan or schedule
 Estimation
 Risk Management
 Different Types of pricing constructs

2
3
Project Plan

A project plan or project management schedule defines

• the key activities,
• key milestone dates,
• the dependencies between internal activities
• as well as dependency with external activities.

2
4
Plan-Driven Methods

 The “traditional” way to develop software

 Very effective for coordination of large numbers of interoperating components

not necessarily produced by a single company or group of workers

 Goal was to reduce chaos and lead to more predictable results

2
5
SDLC: Waterfall Model
• Client’s business team
Requirement Phase • Business Analyst
Project initiation • Process modeler
Requirements gathering
Business process update

Design
• Architect
HLD
• Technical Product
LLD Construction
consultant
Code
Unit Test Testing
• Developers SIT
• Tech lead UAT Deployment
• Operation
Delivery
• Maintenance
• Tester Support
• Business Analysts Feedback
• Client’s business team 26
 Month ->
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Pre-transformation
SOW and Contract Closure
Resource Mobilisation

Phase 1
Requirement Closure
Solution Design
Detailed design
Hardware Readiness
Customisation and Unit testing
ST Testing
SIT and Performance Testing
User Acceptance Testing
Go-Live
Phase 2
Requirement Closure
Solution Design
Detailed design
Hardware Readiness
Customisation and Unit testing
ST Testing
SIT and Performance Testing
User Acceptance Testing
Go-Live
Phase 3
Requirement Closure
Solution Design
Detailed design
Hardware Readiness
Customisation and Unit testing
ST Testing
SIT Testing
User Acceptance Testing
Performance Testing
Go-Live
Project Closure
High Level Implementation Roadmap
High Level Implementation Roadmap
0-6 Months 6-18 Months 18 Months+
IT / Process initiatives Phase 1 Phase 2 Phase 3

Rollout of Event based correlation Topology

KnowledgeBased Correlation
Management UFM Integration with New Inventory
Integration with non-NSN Core Management Solution
Network Management Sunsetting of AMS, AWE Self Care
SSP Integration with SGI
and RAM UFM Integration with all EMSs to
Integration with Transmission
Automation of all existing reports Bill pay kiosk real-time integration invoke telnet sessions for
equipments
troubleshooting
Integartion with KMS
Auto-measurement of relevant KPIs
Auto-ticketing with selected scenarios UFM Integration with CM Tool for auto
notification
Creation of Problem Tickets
Introduce Problem Management UFM Integration with Siteplus
process and New KPIs

Integration of KMS with UFM KMS Enhancement to address present Build Advance Search Functionality
Knowledge Process update for regular upload Limitations in KMS
of artifacts in KMS
Management Process update for recognition for
Migrate / Link other KM database
to/with KMS
upload

Implement UFM Lite Inventory Evalaution of Long Term Inventory

Sync-up of Lite Inventory with all Options
Inventory EMS Sync-up with EMS, Change Management
Systems
Management Siteplus Autoupdate post change
execution Integration with UFM
Ongoing IT Projects Process / OCM activity UFM- Siteplus Integration Sunsetting of Siteplus and other tools

New recommended IT projects

Page 29
 IBM Global Business Services

The Changing Business Environment

Software development is to be adopted for new way of working and technology
changes

Multi Platform Collaborative Cloud Intelligent/

Delivery development Delivery Connected Systems

Impacts on Business and Software Development

 Demand for Rapid product lifecycles  New skills and competencies needed
 Increasing interactions with customer  Increased security and privacy requirements
 Move to adjacent or new markets  Greater need to align with strategic priorities
Incremental Delivery instead of all-at-once delivery

• Iterative – Multiple development cycles

• Incremental – Not all features are worked on at once

• Self-organizing – Teams determine the best way to handle work

• Emergence – Processes and work structures are determined

during the project rather than before

3
1
 IBM Global Business Services

Scrum
Product
Owner
Project Plan – Agile Methodology

Release 1 Release 2

Sprint 1 Sprint 2 Sprint 1 Sprint 2

3
3
 IBM Global Business Services

Traditional Vs Agile
Adaptability
Iterative Development

Visibility
Iterative Development

Time
All-At-Once Development

Time
All-At-Once Development
The Agile Manifesto – 2001

We are uncovering better ways of developing

software by doing it and helping others do it.
Through this work we have come to value:

Individuals and interactions over processes and tools

Working software over comprehensive documentation
Customer collaboration over contract negotiation
Responding to change over following a plan

That is, while there is value in the items on the right, we

value the items on the left more.
 IBM Global Business Services
What Agile is Not!
What Agile is
NOT!
ESTIMATION
 An estimate is an assessment of likely cost in quantitative term for
delivering the scope

 Estimates include project labor cost, hardware and software costs as

well as travel and other expenses for both suppliers and its partners

 Estimates are based on experience and historical data from previous

similar projects.

3
7
Why estimates are developed ?
 Serves as a basis for generating the value of the contract

 To determine the skill level, number of resources, and location

 To establish a cost schedule against which to measure actual expenditures

3
8
What goes into an estimate?

Hardware and datacenter cost

Software Licenses cost

AMC (Annual Maintenance Contract) cost

Implementation Resource Cost- (Own, suppliers and partners)

Training Cost

Expenses like travel, hotel, per diem, Visa fee and all others
3
9
Estimating Techniques- Top Down

Top Down Bottom Up

 Initial phase  Final Phase before
 Less Accurate contracting
 Less expensive to  Higher Accuracy
conduct  Expensive to conduct
 Can have higher
contingency

4
0
Estimating Techniques- Top Down
 Top-down estimating yields high-level estimates of projects based on
historical data, or expert judgment

 This approach is based on collecting judgments and past experiences

about previous similar activities

 Top-down estimating is usually less costly, but it is also less accurate than
estimates done using bottom-up techniques

 Top-down estimates are used most often early in the life cycle for
proposals or for estimate activities in the distant future when little
detailed information is known.

4
1
Estimating Techniques- Bottom Up

 A bottom-up cost estimate involves receiving estimates for each work unit
from the intended owners of the work units and then summarizing them in
a project cost estimate

 A good bottom-up estimate demonstrates a detailed understanding of the

work to be done on a project

 Bottom-up estimates are considered to be the most accurate but are

usually costly.

4
2
Estimating Techniques- Bottom Up

 A common problem with bottom-up estimates is that the overall project

estimate might be artificially inflated because each contributing work unit
might add its own estimate contingency.

 Bottom-up estimates are used later in the opportunity life cycle when
more detailed data is available and the estimate must be more accurate
(such as before submitting final proposal).

4
3
Implementation Effort Estimation (using Top Down approach)

4
4
Best Practices in Estimation

 Develop multiple independent estimates

 Include appropriate contingency
 Avoid force-fitting a presumed outcome
 Document all assumptions

4
5
Risk

 A potential event or future situation that may adversely affect the project
or the presales effort

 A risk can impact

 Chances of winning the deal
 Profitability
 Customer Satisfaction

4
6
Risk Characteristics

 A risk is something that can negatively affect the project.

 Every risk has some probability associated with it.

 If the risk has the probability 1, then it is not a risk. It is an

issue, that need to be dealt immediately.

 A risk is tied to a future event, typically a project milestone or

project phase.

 A risk must have conditions around it that can be managed.

4
7
Can they be classified as risk?
 The contract for the project has firm fixed-price terms.

 A meteor might strike the earth, blotting out the sun for several years.

 The client project sponsor did not show up for the kickoff meeting and has not
provided the key resources promised.
Can they be classified as risk?

 The technology used on the project is new; there is only a prototype to show
that it can work.

 The project team just completed a prior project that involved significant
overtime.

 There are five near-critical path tasks, and a delay in any one will probably
delay project completion.
Risk Review Outcome

Classification of Individual Risks

Key Risks

# Description Probability*Impact Responsible Due Date Status

Distributed team- as the delivery and

client team are distributed over multiple
1 High Delivery Manager Ongoing
location, this would create
communication overhead

Delay in getting remote access,,

Infrastructure
2 instability or less Bandwidth would High 15/9
Manager
impact timeline.

Resourcing – as the project need

specialized skills and experience,
3 resources may not be available on time. Med RDM 15/10
Besides, it would be difficult to motivate
resources for frequent travel.

As the new application has multiple

integration with legacy application, delay
Australia
4 in getting documentation and support Med ongoing
Onsite Team
from the legacy team would increase
time and cost

51
Risk Response Strategies

Accept the risk Set Aside risk Transfer the risk Contain the risk
reserve

 This is done  Risk reserves are Transferring risk

when the accounted for as means giving the where proactive
probability of the money set aside responsibility for steps are taken
risk happening is to respond to addressing all or part to lessen the risk
very low. some future of a risk to someone exposure by
event. else: the client or lowering risk
sponsor, a supplier, or probability, risk
another organization.
impact, or both
Transferring a risk
changes who is
responsible, but it
does not remove the
risk from the project.

52
Total Risk in an Opportunity

The project's exposure to risk would be the sum of the individual risk exposures.

Consolidated Project risk exposure =

(probability of risk 1 x impact of risk 1)

+ (probability of risk 2 x impact of risk 2)
+....+( (probability of risk n x impact of risk n)
Usage of Risk in selling process

• Each opportunity is assigned a risk rating ( 1 to 9 or High / Medium / Low)

• Risk contingency needs to be provided based on risk rating

• Higher risk contingency makes the proposal unattractive

• A proposal with high risk may result in a "No Bid" decision by the senior
management
Contingency Allocation

Risk Level Contingency

Low 6%
Medium 12%
High 22%
Very High Avoid
Price / Contract Value

Cost Description Amount (in US$)

Hardware 99,000
Software Licenses 2,50,000
Implementation services 3,00,000
Total Baseline Cost 649000
Risk Contingency added 77,880
(12% of baseline cost)

Total Budgeted Cost 726,880

Gross Profit (20% of the total budgeted cost) 145,376

Total Contract Value 8,72,256

Commercial Solution

Contract Price
Contract Type
Payment Milestones
Terms & Conditions
Legal

8
The importance of Pricing

• Price has a direct and substantial effect on profitability/ bottomline.

• On average, a 5 per cent increase in price increases earnings before

interest and taxes (EBIT) by 22 per cent

• 5 per cent increase in sales turnover increases EBIT by 12 per cent

• 5 per cent reduction in cost of good sold increases EBIT by 10 per

cent (Hinterhuber, 2004).

5
8
The importance of Pricing

• Increase in price might lead to a fall in quantity sold

• A higher price might need more spend on advertisement, brand

building

• Business managers should be aware of the implication of pricing.

5
9
Traditional Pricing strategies

“In most firms prices are determined by

intuition,
opinions,
rules of thumb,
outright dogma,
top management’s higher wisdom,
or internal power fights.”
--Hermann Simon

6
0
Traditional Pricing strategies
Competitive-Based Pricing: Set price in
Cost-Plus Pricing: Knowledge of
relation to competition’s prices
own costs plus a percentage
Supplier managers essentially give control of
Cost: cost of goods, variable costs, and full
costs their marketing strategy to competitors
Plus: supplier’s target profit Supplier with largest market share usually
provides price leadership

6
1
Cost Plus Pricing in a manufacturing context
To calculate the price of a manufactured component
£
Variable costs of production (e.g. materials, direct labour) 5.75
Allocated overhead costs (see below) 3.49
Full cost of production 9.24
Desired profit margin (20%) 1.85
Final selling price 11.09

Calculation of allocated overhead

Total overhead cost for factory £150,000.00

Expected sales volume 43,000 units

Overhead cost per unit £3.49

Complicating factors
How to allocate overhead between multiple products manufactured using the same facilities?
What happens if sales volume is higher or lower than target?
Cost Plus Pricing in a manufacturing context

Cost-plus pricing contains a fundamental logical flaw at its very heart:

• In order to set price one must know average costs of production

• One cannot know the average cost of production without knowing
production and sales volume
• Sales volume is expected to vary with price
• Therefore, in order to set price one must first know … price!
Breakeven Cost Analysis

• If we cut price, then by how much must sales volume increase so

that we increase our profit?

• If we raise price, then by how much can sales decline before we

incur a loss?
Cost Plus Pricing in service context

1. Baselined Estimate +

2. Risk Contingency +

3. Gross Profit

8
Competition Based Pricing

• The price may be slightly higher, lower or same as competition.

• The company should have accurate information about competitor‘s

prices. Competition sometime disguise actual price by providing off-
invoice discount, yearly discount and other rebates

• Price competition among suppliers can hurt the industry.

• The sales persons would not be motivated, as it assumes the product

is “me-too”.
Value-Based Pricing

Value-Based Pricing: Price should be set in relation to a market

offering’s value

Fundamental Value Equation:

(Valuef – Pricef ) > (Valuea – Pricea)

Value-Based Pricing Framework

Cost f,a Price a Value a Value f

Rs./Unit

0
Customer
Incremental
Profit for Incentive (Į) Value
Offering a To Purchase (∆ Value f,a)
Offering a
Incremental value is divided between buyer and seller.
Value Based Pricing

• Capturing the entire incremental value may be a bad

strategy

• Weaken customer relations

• Ignore other method of gaining higher profitability (long-

term contract, access to a large share of customer
business)
Value Based Pricing Guidelines

• Take the overall sales strategy in consideration

• Customers may not evaluate value in a similar way

• Customers may not be aware, how to make best use of

available features

• If the product or company is new, customers should be

given a higher percentage of incremental value

• Customers should be able to justify the price within their

organizations
Pricing Strategy – The Three Cs of Pricing

Costs
Customers
Competitors

• All of these factors are important

• No single one of these factors can fully determine price

7
1
Pricing Strategy

Factor supporting pursuit of a pricing strategy:

Market size
Forecasted growth
Significance of any learning effects
Experience curve
Market knowledge
Anticipated reaction by present or potential competitors
How persuasively demonstrable the value proposition is
Pricing Strategy

Penetrating Pricing Skimming Pricing

Strategy: overall profit Strategy: overall profits
earned by selling a larger earned by selling fewer units at
number of units at a lower a higher profit per unit
profit per unit

Pricing strategy can only be understood within

the context of the business unit’s market
strategy for each segment
Steps in Value Based Pricing (Anderson, Wouters, & Van Rossum; 2010)

1. What is the cost of the supplier’s market offering?

2. What is the differential value to the customer?

True economic value = cost of the next best alternative + value of performance differential

One can increase TEV by providing multiple supplementary services.

3. What are the pricing strategy for the segment?

Companies can earn lesser price premium in lieu of a bigger share of the demand or
longer period

4. What are the other considerations?

• Idle plant / resources
• Impact on other customers
Collaborative Negotiation

Increase the Value Reduce the TCO

1. Automation of existing tasks 1. Defeaturing
2. Reducing outage 2. Phase-wise implementation
3. Reduction in installation effort and time 3. Involving customer in services
4. Payment based on outcome 4. Easy Financing

Increase the Overvalue return from relationship

• Instead of making more profit from one deal, increase the overall revenue
and profitability from relationship
• Convince the client on strategic long-term vendor selection instead of
tactical vendor selection
•
Myths about Pricing

1. Industrial buyers are very price sensitive. Price is one of the criteria
in vendor selection, though important one.

2. Pricing is a zero-sum game. The value based approach allows you to create
higher value, that increases the pie.

3. Firms are price-takers, who must follow the price set in

the market.
Bid Qualification and Price

Shall we bid?

No Yes

Bid near cost Bid for reasonable profit Bid at high profit
Contract Type

A specific type of contract is selected to ensure:

• there is reasonable distribution of risk between the buyer and
seller

• the greatest incentive for the seller’s efficient and economic

performance

• Contract type can be used to demonstrate vendor’s commitment

towards value realisation

• Price and appropriate contract type are deal clincher 8

Selecting a Specific Contract Type

The amount or frequency of

How well-defined the scope changes expected after
scope of work is? the contract is finalized

The level of expertise and

time buyer has in Industry Standard
managing the seller
 Types of Contract

Time Fixed
& Material Price

Benefit
Sharing

Cost
Consumption
Based
Reimbursement
80 80
Cost Reimbursable

Cost plus percentage of

Cost Plus Fixed Fee Cost Plus Incentive Fee
costs
• The buyer pays all costs • This type of contract pays • This is bad for buyers, it is
• The Fee is fixed, all costs and an agreed also illegal in some
irrespective of cost. upon fee, plus a bonus for countries including in USA.
• This helps to keep the beating the target • Sellers are not motivated
seller’s cost in line, • Contract = Cost plus a fee to control cost, as sellers
because a cost overrun of $100,000. profit would increase with
will not generate • For every month the cost overrun.
additional profit for seller.. project is completed • Contract = Cost plus 10%
• Contract = Cost plus a fee sooner than agreed upon, of cost as fee
of US$100000 seller receives an
additional $10,000

81
Time and Material (T&M)

T&M T&M With Cap

• This type of contract is primarily includes resource cost, resource’s time • T&M with a ceiling
spent is priced on a per hour basis.
• In case of IT , there wont be many material
• Many times, the buyer approves the timesheet of the resources
• There is no additional fee to be paid, the cost of the resource includes
the profit of the vendor.
• One advantage is that vendor relations are generally better under this
type of contract
• This type of contract is especially useful for projects where the scope is
difficult to define and protects the seller from cost overruns, although
the buyer will be the one bearing the risk of loss.

82
 Fixed Price

• Fixed Price Or Lump-Sum (FP) means a fixed total price for a well-defined scope.
• This is the most widely used form of contract in large IT deals.
• If the scope is not well defined, both parties are at risk—the buyer may not receive the desired product
or the seller may incur additional costs to provide it.
• Fixed price contracts provide the buyer with defined cost without overruns, although the initial cost may
be higher to account for risks and unknown factors by sellers.
• The seller does bear the risk of loss if costs overrun or if the project entails more requirements than
originally anticipated.
• To motivate the sellers, the payments are made based on achieving different milestones in the delivery.
• Fixed price contracts can be further enhanced by including penalty or incentive for vendor performance.
• This type of contracts can be expensive as the sellers would keep higher provisions for contingency.

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 Fixed Price

Payments
• Fixed Price for Fixed (FP)
Or Lump-Sum pricemeans
projectsaare done
fixed based
total on achieving
price for a well-defined scope.
milestones. The most common milestones used in Industry are:
• This is the most widely used form of contract in large IT deals.
• If the scope is not well defined, both parties are at risk—the buyer may not receive the desired product
or the seller may incur additional costs to provide it.
• Approval
• Fixed price contracts provide theof buyer
Business Requirements
with defined cost without overruns, although the initial cost may
be higher to account for risks
• Code and unknown
is developed andfactors by sellers.
installed on client’s
• The seller does bearmachines
the risk of loss if costs overrun or if the project entails more requirements than
originally anticipated.
• Testing
• To motivate the sellers, is successfully
the payments are madecompleted with known
based on achieving different milestones in the delivery.
• Fixed price contractsminor
can beissues
further enhanced by including penalty or incentive for vendor performance.
• This type of contracts can be is
• Service expensive
live as the sellers would keep higher provisions for contingency.
Payment Milestones

Payments for Fixed price projects are done based on achieving

milestones. The most common milestones used in Industry are:

• Approval of Business Requirements

• Code is developed and installed on client’s
machines
• Testing is successfully completed with known
minor issues
• Service is live
Consumption Based
Description Pros Cons
• Client pays an agreed rate for a • Volume driven • Approach should only
specified transaction or event (i.e., be considered when
each Resource Unit) actually used by • Aligns with cloud price can be aligned
the client. and other “On
to a commodity or
Demand” utility
standardized
• Payment can be linked to volume, offering
transaction
time, resource configuration or a mix
• Difficult to address
of all three. • Economics of scale
client-specific value-
• There can be a minimum baseline add
commitment • For vendor,
investment or fixed
costs are exposed if
client volume
expectations are not
met

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Benefit Sharing ( Business Metrics Based)
Description Pros Cons
• Client pays agreed charges based on • For client, cost is
client achieving agreed business aligned to overall
metrics (e.g., revenue increase, business results
improvement in customer (i.e., client looks to • Recovery of price may not
satisfaction score, reduction in vendor to share in be within vendor’s control
customer churn) client’s gains and
“pains”). • There may not be linkage
between cost and price,
• If implemented the vendor may have
properly, can unacceptable financial risk
develop long-term
partnership
between buyers
and seller

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Benefit Sharing ( Gain Sharing)
Description Pros Cons
• Vendor’s return is determined by an • If structured • Understanding and
agreement on sharing cost savings properly, drives agreeing with client as to
related to operational efficiencies, vendor and client original costs and resulting
lower cost of goods or services behavior to lower cost savings subject to the
procured, or other arrangements costs gainshare
• Good in theory, difficult to manage • Gainshare incentives may
and structure also have pain share
element if not achieving
objective

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Value-Based Pricing

• Value-Based Pricing: Price should be set in relation to a market

offering’s value

• Fundamental Value Equation:

(Value – Price ) > (Valuea – Pricea)

f f
Value-Based Pricing Framework

Cost f,a Price a Value a Value f

Rs./Unit

0
Customer
Incremental
Profit for Incentive (Į) Value
Offering a To Purchase (∆ Value f,a)
Offering a
Collaborative Negotiation

Increase the Value Reduce the TCO

1. Automation of existing tasks 1. Defeaturing
2. Reducing outage 2. Phase-wise implementation
3. Reduction in installation effort and time 3. Involving customer in services
4. Payment based on outcome 4. Easy Financing

Increase the Overvalue return from relationship

• Instead of making more profit from one deal, increase the overall revenue
and profitability from relationship
• Convince the client on strategic long-term vendor selection instead of
tactical vendor selection
•
Value Measurement
Key Performance Indicators Before After 3 months of

Number of Portal hits 3,300,000 4,800,000

Number of Purchases 2,00,000 3,30,000 (incl. offnet)

Unique User Count - +20%

Number of first time subscribers - +15%

Home Page Exits to External Links - -20%

Number of Distinct Services 8 15

Average number of incorrect charging cases 8% to 10% None

Content Purchases Successes 20% 33%

(due to low balance, (only due to low balance,
system stability issues, Airtel network issues)
network issues)
Content Download Successes 50-70% 93%
(system stability, network (subscriber behavior,
issues, subscriber network issues)
behavior)

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Value Measurement
Key Performance Indicators Before After 3 months
Average time taken to download the content post - 2-3 times faster
confirmation of Payment

Average time taken to download homepage - 2-3 times faster

Number of Languages supported 1 10

Number of devices adhering to the UI perfect fit 10% out of top 50 100% out of top 50 (85%
guidelines (top 50 calculated traffic),
based on user hits) 80% out of top 100 (90%
traffic)
Average number of incorrect charging cases 8% to 10% None

Total Number of Distinct Contents 110,000 Unique 1,000,000+ unique contents

Contents 30,000,000 device specific
400,000 device specific variations
variations
Personalized Pages Not Applicable My account - past
transactions of user
My page - user managed page

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Value Measurement
Key Performance Indicators Before After 3 months of

Number of Portal hits 3,300,000 4,800,000

Number of Purchases 2,00,000 3,30,000 (incl. offnet)

Unique User Count - +20%

Number of first time subscribers - +15%

Home Page Exits to External Links - -20%

Number of Distinct Services 8 15

Average number of incorrect charging cases 8% to 10% None

Content Purchases Successes 20% 33%

(due to low balance, system stability issues, (only due to low balance,
network issues) Airtel network issues)

Content Download Successes 50-70% 93%

(system stability, network issues, (subscriber behavior, network
subscriber behavior) issues)

94