Shiva Badruswamy's Blog on Product Management, Marketing, Pricing and Analytics Strategy

The title of this post may not be readily intuitive at first. Marketing and sales managers might think if I reduce my production or variable costs the profits might go up a lot more than increasing price; or they might think if I can cut down on my company fixed costs (overhead costs that do not vary with the quantity of items sold), then my profitability might go up even higher. So, before you go and layoff a bunch of overhead folks such as accountants and sales operations or convert an office mortgage into a lower opex lease to save on fixed costs, you may want to read this post. Profitability is basically in its simplest form can be defined as: Profits = (Price-Var. Cost)*Qty Sold - Fixed Costs . I am going to assign symbols to these words so we can make things a bit easier to depict. In symbols: Pr = (P - VC)*Q - FC ................................Eq. A Now let's assume a company's current profitability situation: Microsoft sells a version of Surface Pro 3 tablet...

If you were to bet on one company for being the best in IaaS and PaaS leadership, it ought to be Microsoft. Here's why: 1. Network Effect: There is the evergreen argument that the PC is dying so MSFT may soon see its market share decline but quite contrary would be the direction. It is easier for MSFT to move its solutions to the cloud and become a Platform Services provider for its existing large customer base and retain that base, rather than for a new entrant to come in and develop office solutions afresh on the cloud and acquire new customers. Granted MSFT has lagged a little bit in getting its Azure Cloud Service out but the fact that Azure is being used by half of the fortune 500 companies means the supply chain that supports these large enterprise companies would need to run Azure cloud as well. Competitors such as Google are simply not present in the enterprise segment or others such as Amazon Web Services despite having the leading market share in cloud deployments, sim...

When designing channel incentives, I always keep in mind that at the end of the day I am dealing with a human being. Incentive design, therefore, must be aimed at both the rational and emotional side of the account manager or channel partner. Neuro-scientific and other studies have for some time now established that human beings are swayed by BOTH rational and emotional rewards. In 1970, Jeffrey Alan Gray, a behavioral psychologist, created the BAS and BIS system of behavioral traits. BAS is the Behavioral Approach System and BIS is the Behavioral Inhibition System. Someone with a BAS prefers to acquire more gains so they can be rewarded further. They play to reach for more and want to get rewarded for getting more. They embrace the risk-reward paradigm. On the other hand the BIS folks tend to want to stay put at a certain level and have a fear of losing their status. They fear being downgraded to a lower status level by not meeting their targets. Taking the same channel incentive de...

I have designed several promotional pricing offers, SPIFFs, and compensation kickers used in accelerator/decelerator design. When I designed these offers, I always found that the most effective offers are ones that are short term and focused on achieving a specific objective. Firstly, a discussion on offers that did not work. We designed a port in credit (PIC) offer where customers get paid a certain amount  (vis bill credit) when porting in from a competitor as opposed to no bill credits if they are not transferring over from a competitor. While the offer itself was sound, two things went awry -  it targeted the wrong business segments and the offer was extended for several quarters, making it almost perennial. By offering the PIC to the wrong business segment we found that we were simply paying such credits to customers who would have ported in anyways. In other words we were offering PICs to segments which already had a high port in rate. We can confirm this hypothesis by...

Recently, I had the opportunity to interact with Amazon Web Services (AWS) team. As we all know Amazon is a company that obsesses itself with customer service. And as part of that service, Amazon philosophy is to get its pricing right - the pricing that would generate the best possible costs for its customers. According to them that pricing framework is found in the pay as you go or pay per use model. In their publicly available Pricing Overview paper, they contend that: “While the number and types of services offered by AWS has increased dramatically, our philosophy on pricing has not changed. You pay as you go, pay for what you use, pay less as you use more, and pay even less when you reserve capacity. Projecting costs for a use case, such as web application hosting, can be challenging, because a solution typically uses multiple features across multiple AWS products, which in turn means there are more factors and purchase options to consider.” (Source and copyright: http://media.am...

How many reps realize that customer tenure is the biggest driver of margins bar none? The focus during the selling process typically has been mostly toward tweaking variables that only marginally impact profitability. Unfortunately, the highest influencer of margins - an account's effective tenure is not readily understood as it takes some math to envision the parts to the puzzle. I will try to deconstruct the math for the sales folks here, so they can use churn as a powerful tool in their arsenal to earn more. Customer tenure is defined as the number of months a customer pays the monthly recurring service charge in a recurring revenue contract. Note that when a customer signs up a 24-month contract with a service provider, it does not mean that every single user license of the customer or, in the wireless carrier world, a line subscriber will stay with the provider all 24 months. Let's assume a customer has signed up 1000 end user licenses or subscriber lines for its employee...

There are various ways to price out capacity at a wholesale level but two of my favorite ways are pooling and stacking. When I designed the stackable plan for the Federal Government sector, I was conscious of the advantages and disadvantages a stackable plan offered over a pooling plan. But, before we get there, let me first explain with examples how these two plans work. Suppose a business customer wants a large amounts of data but does not know how much each smart phone or mobile broadband line would consume, then a pooled data plan might be a good idea. Here's how it works. Enterprise customers could buy a 100GB data plan for let's say $1000 per month. For this $1000 per month the customer also gets 50 lines included in the plan.  If the customer wants more than 50 lines, additional lines would cost $5 per line to add to the $1000 pool. remember you can add a line here, but you do not get any additional data capacity. You are capped at the total 100GB. The important thing, h...