TO. PROFFESOR - NITIN BASU BY- HARIOM (B.TECH+MBA,CS 6TH SEM)

NIMS UNIVERSITY,SOBHA NAGAR, JAIPUR NIMS UNIVERSITY, SOBHA NAGAR, JAIPUR

Pumping More Profit

Leveraging Business Growth with Value-Based Pricing

Wipro Technologies:Company profile:

Global services provider delivering technology-driven business solutions to customersOver 40 ‘Centers of Excellence’ that create solutions

around specific needs of industriesWorld’s first CMMi Levels 5 certified software services

companyFirst company outside the USA to

receive the IEEE Software Process Award

Management development objectives met by the programs:

It has been positioned as a reward and retention strategy

It is aimed at Grade C1 upwards as an initiative of Grooming motivated and outstandingemployees for

future

leadership positionsProgram offered:Postgraduate Diploma and Certificate:

Wipro participants begin the program with one of the following certificate program.Postgraduate certificate of Management StudiesPostgraduate certificate of Financial ManagementPostgraduate certificate of Project Management & OutsourcingPostgraduate certificate of Marketing ManagementAnd upon completion of the program and after an internal evaluation, selected participants willarticulate to the Postgraduate Diploma of Business Administration.

Duration:

Table of Contents

01 .................................................................... Introduction

0 2................................................................... Defining the Fulcrum

03 .................................................................... Three Requirements for Value-Based Pricing

05 .................................................................... Four Steps to Establish Value Pricing

6 .................................................................... Conclusion

7 .................................................................... About the Author

8 .................................................................... About Wipro Technologies

9 .................................................................... About the Wipro Pricing and Profitability Practice

6-18 months for the postgraduate certificate program, and another 6-18 months for thePostgraduate Diploma program.

Learning Experience:As wipro’s participants join the public classes, learning tools such as elibrary, discussion forum,interactive courseware and instant messenger are used throughout their Programs.

However to encourage bonding and instill the values taught in Organizational behavior(OB) and how it can be applied in Wipro, a closed OB class is created where they can discuss freely issues that are relevant to Wipro.

Progress reports:Regular reports are provided to the Human Resource department for their evaluation and follow-up.Non-login ReportFortnightlyGrade reportMonthly

Motivation Factor:As the program is 75% sponsored by Wipro and 25% paid by the participant the staff has vested interest to focus and excel in the program.

Wipro

Wipro Limited (formerly Western India Products Limited(Amalner)) (BSE: 507685, NSE: WIPRO, NYSE: WIT) is an Indian global IT services and consulting company headquartered in Bangalore, India. As of 2012, Wipro is the second largest IT services company by turnover in India, employing about 120,000 people worldwide as of December 2011.[1] It provides outsourced research and development, infrastructure outsourcing, business process outsourcing (BPO) and business consulting services. The company operates in three segments: IT Services, IT Products, Consumer Care and Lighting. It is 9th most valuable brand in India according to an annual survey conducted by Brand Finance and The Economic Times in 2010.[2]

History

The company was established in 1945 by Mohamed Hasham Premji as Western India Products Limited, later abbreviated to Wipro. It was initially set up as a vegetable oil manufacturer in Amalner, Maharashtra, producing sunflower Vanaspati oil and soaps. [3]

[4] The company logo still contains a sunflower to reflect their original business.

In 1966, Azim Premji, aged 21 at the time, took over as chairman of the company, and started the changes that over time transformed Wipro into one of the largest IT outsourcing services provider of the world.[5] Along with a small number of shareholders, Azim Premji is a major shareholder in Wipro.[6] During the 1970s and 1980s, the company shifted its focus and began to look into business opportunities in the IT and computing industry, which was at nascent stages in India at that time. Wipro marketed the first indigenous homemade PC from India in 1985.

By 2000, Wipro Technologies emerged as the largest publicly listed software exporter in India and the first software services provider to be assessed at SEILevel 5 in the world.[7]

Wipro won the Golden Peacock Innovative Service Award[8] for effective service delivery using state of art technology in 2001.

Wipro was awarded SVG1, the highest rating in Stakeholder Value Creation and Governance Practices by ICRA, a premier credit rating agency in India and an associate of Moody’s Investor Services of USA.[9]

Wipro was awarded the India Manufacturing Excellence Award for its factory in Pondicherry in the large enterprises category by Frost & Sullivan.[10]

Wipro was awarded the ASTD BEST Awards for 2005 by the American Society of Training and Development.[11]

Wipro's Global Command Centre won the Marico Foundation and Business World's Innovation for India Award in 2006. The conglomerate was rated as theNo.1 Network Integrator and No.1 Network Security Services Provider by Voice & Data Magazine.[12]

Wipro was ranked 37 in The Brand Trust Report among the most trusted brands in India.Wipro BPO

Wipro BPO employs over 22,000, of whom 3,150 are at its Hyderabad campus. The planned new recruitments will be from among science and commerce graduates and under-graduates.

The majority of Wipro BPO’s business comes from the US, followed by Europe. The rest of the world contributes only marginally to its top line. The company posted a turnover of $290 million in FY08.

Founded in 2002, Wipro BPO has operations in Delhi, Pune, Kolkata, Chennai, Mumbai, Hyderabad, Navi-Mumbai (Belapur) Greater Noida, Mysore and Kochi in India. It also has offices in Shanghai and Cebu in Asia and Curitiba in Brazil and Wroclaw in Poland. It has 44 clients in segments such as banking & capital markets, insurance, travel & hospitality, hi-tech manufacturing, telecom and healthcare.Wipro divisions

The group companies of Wipro Limited.

Wipro Consumer Care & Lighting (WCCLG):- It has a profitable presence in the branded retail market of toilet soaps, hair care soaps, baby care products and lighting products. WCCLG is also a leader in institutional lighting in specified segments like software, pharma and retail.

Wipro Infrastructure Engineering:- It is generally known for manufactures precision-engineered hydraulic cylinders and truck hydraulic solutions for the infrastructure and related industries. It the second largest independent Hydraulic Cylinder manufacturer in the world.

Wipro GE Medical Systems Limited:- It is a Joint venture between Wipro Limited and General Electric basically delivering what it calls "quality solutions that effectively meet the needs of customers and patients". Its products and services range from diagnostics to IT,

helping healthcare professionals combat cancer, heart disease and other ailments.

[

Wipro was established in 1945 as a vegetable oil manufacturer in Amalner, Maharashtra. The company at that time was known as Western India Products Limited. Its main area of business was the production of Sunflower Vanaspati Oil, and later on, soaps and other consumer care products.

Pumping More Profit: Leveraging Growth with Value-Based Pricing

Give me a lever long enough, and a fulcrum on which to place it, and I shall move theworld. ~Archimedes

Pricing is one of the most powerful and underused Value-based pricing is a strategic tool to be championed

strategies for growth in any business. Most companies by the executive suite and business unit leads. This paper

focus on metrics other than price: fixed and variable costs, outlines the elements of a successful value-based pricing

revenue or increase in unit sales, decreases in inventory. In strategy.

fact, because price is not commonly associated with bottom

Defining the Fulcrumline profitability; the result is often reactive pricing strategies

which undermine rather than enhance profitability.

As a major factor in leveraging business growth, it isProactive pricing is a lever for profitability, and the fulcrumimportant for a company to fully understand the concept offor proactive pricing is value. This combination can have avalue. The basic definition is:profound impact on business growth. The higher the value

of a company’s offerings, the greater the pricing leverage,

and the greater the profits. Unlike legacy strategies such as

cost-plus, historical-based, and volume-driven pricing, which

tend to decrease price premiums and profits over time,

value-based pricing optimizes a company’s pricing structure

for the current market conditions. It is also highly adaptable

and can therefore accommodate market changes without

loss of profit.

3

Three IngredientsUnlike other factors that contribute to pricing, value is

neither quantifiable nor static. It is a buyer-side quality for Value-Based Pricingthat is founded on perception, proportional to the buyer’s

perceived benefits and inversely proportional to the buyer’sThere are three necessary “ingredients” that must be in

perceived costs. Benefits are those aspects of your productplace in order to establish value-based pricing in a company:

or service that differentiate it from competitor offerings—

in ways that matter to the buyer. Cost can include factors1 . Focused Data Analytics

besides the financial price; the product or service may2 . Appropriate Company Culture

require a time or resource expenditure by the buyer, or3 . Positive Stakeholder Behavior

it may involve opportunity costs (see Table 1). If benefits

outweigh costs, perceived value will be positive, and theFocused Data Analytics

higher the benefit-to-cost ratio, the higher the value— in theData is the place to start. There is a range of data and

perception of the buyer.information that must be captured in order to effectively

pursue a value-based pricing strategy. This data is analyzedInfluence buyer perception, then, and you influence value.

to determine the key analytics that will help convert valueInfluence value so that it increases in the view of the buyer,

to numeric expression. These focused data analytics mayand you have the makings of a value-based pricing strategy.

vary by product line and customer type.

In our engagements across a range of companies, we have

found that many companies have one or usually more of

these challenges to address before they can move forward:

TABLE 1. EXAMPLE BENEFITS AND COSTS THAT CONTRIBUTE TO VALUE

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• therefore, must be aligned with the goals of the changeIncorrect data

• Poor data quality initiative, which is why this is the second ingredient that

• facilitates the shift to value-based pricing.Too much data

• No clear metrics or measures defined

• Positive Stakeholder BehaviorOverall poor transformation of data into

Stakeholders are strong influencers of the behavior ofinformation

• Lack of competitive data the rest of the company. It is important to ensure that

key stakeholders relative to the pricing organization are

If any of these challenges are present in an organization, identified and enrolled in the move to value-based pricing.

a data quality initiative must be undertaken before value- Active support of the change by executives and senior

based pricing can be embedded in the company culture, management will help mold positive stakeholder behavior.

In addition, focus on the stakeholders themselves and theirwhich involves the second required ingredient.

inclusion in the change initiative will significantly impact the

move to value-based pricing.Appropriate Company Culture

Pricing practices are usually well-embedded in the companyAligning stakeholder behavior with value-based pricing

culture—often expressed as “the way we do things here.”processes and strategies requires:Company culture is driven from the top down, and any

culture change effort must be actively sponsored by the• Identification of key stakeholders relative to theexecutive suite.

pricing organization.

• Interviewing stakeholders to understand theirShifting to value-based pricing generally calles for a change

pricing practices.in company culture in virtually all instances. Like focused• Understanding the issues of each stakeholderdata analytics, an initiative must be created and implemented

group.to foster this change. Such an initiative will include:• Achieving buy in for the change from key

stakeholders.• Characterization of the current pricing• Conducting knowledge transfer sessions of keyorganization.

pricing processes and best practices.• Documentation of gaps between current pricing• Training for new technologies to be implementedpractices and practices that support value-based

for the new pricing organization.pricing.

• Supporting stakeholders to communicate and• Definition of clear pricing goals, targets,support change into the company at large (e.g.,measurement/metrics, and accountabilities.talking points, standard presentations, online• Design of new pricing processes and procedures.Q&A/FAQs).• Creation of effective communication and

knowledge transfer activities.

A critical part of effecting a change in company culture as it

relates to pricing is to achieve buy in and active support by

key stakeholders in the organization. Stakeholder behavior,

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Four Steps to Establish Value-Based Pricing

Since value is a subjective measure based on buyer’s for the drilling project. The company wants to purchase

perceptions, the pricing organization must find a way to roller cone drill bits for the job, and identifies two candidate

quantify value, apply this to pricing, and prepare the sales suppliers: Company A and Company B. Company A uses a

force to demonstrate value to prospects. Wipro has cost-plus pricing model, while Company B decides to use

developed a four-step process to establish and leverage value-based pricing.

value-based pricing to pump up profits. In addition to

discussing each step, we will go through the process with TABLE 2. COMPANY A AND

AcmeCorp (a fictional example) to demonstrate its use. COMPANY B DRILL BITS

Example Scenario

Most oil and gas services companies sell drill bits. At the

bottom of the drill system is the bit, which is used to drill the

rock formation when drilling a well for oil/gas production. In

general, the drilling operator would choose the bit according

to the type of the rock formation. The most common types

of bits are roller cone bits and diamond bits, they vary in size

to drill different sizes of holes.

AcmeCorp , a large drilling operator serving the oil and gas

industry in North America, plans to drill 20 holes for gas

production. Each hole is expected to be 5,000 feet below

ground. AcmeCorp will incur $10,000 per day in labor costs

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•Step 1: Identify Value Drivers Customer Value Research

•The first step of the Value-Based Pricing Process is to Customer/Product Surveys

•determine all the value and benefits the customers receive Conjoint Analysis

•from an offering through research and surveys that translate Competitive Data Analysis

perceived benefits into quantitative values. The quantified

benefits are analyzed to determine which represent AcmeCorp Example

competitive differentiators (e.g., a particular product feature, From this assessment, Company B realizes two value drivers

product quality, cost of ownership). These differentiators are which increases customer perception on value and can be

prioritized according to value and those with the highest considered as product benefits in comparison to Company

customer benefit are identified as value drivers. A’s product:

1 .Table 3 helps a company identify customer value drivers Longer average drill bit life: 5000 feet compared

through some product and customer value research. to 2500 feet

2 . Shorter time to drill a hole: 60 hours compared

Some tools which help identify customer value drivers to 72 hours

include:

TABLE 3. RESEARCH BASELINE FOR VALUE DIFFERENTIATOR IDENTIFICATION

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•Step 2: Quantify Value Drivers Understand your customer and identify the value

After identifying the value drivers and benefits to the drivers which are most important for product

customer, the next step involves ranking the favorable points offering.

•by importance and measuring the driver impact on company Quantify the financial worth of the value drivers.

•performance. This step requires the usage of published Combine quantified value with customer

scientific tools such as Economic Value to the Customer economics, competitive reference, and differential

(EVC). performance data to develop an actual value

estimate.

Economic Value to Customer (EVC) is a framework to

determine pricing for products and services. It helps to gain AcmeCorp Example:

maximum price for products.and is expressed as follows: Company B decides to use Economic Value to the Customer

to quantify the two identified value drivers or benefits to

EVC = competitor price + our positive differentiation the customer.

value – our negative differentiation value

EVC = competitor price + our positive differentiation

Measures of economic value are based on what people value – our negative differentiation value

want – their preferences or value drivers. These can be

determined through customer surveys and statistical We know the competitor price is $10,000 for one roller

analysis like conjoint analysis. cone drill bit. How do we calculate Company B’s positive

Steps in estimating EV are: differentiation value?

TABLE 4. ACMECORP EXAMPLE VALUE DRIVER 1

TABLE 5. ACMECORP EXAMPLE VALUE DRIVER 2

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If Company B estimates different price points for their offering, total cost to AcmeCorp will vary as shown in Table 6.

TABLE 6. ACMECORP EXAMPLE COMPANY B PRICE SCENARIOS

Step 3: Document Value Drivers

This step involves documenting use cases and examples which show the ROI results of a specific value driver or benefit.

These use cases can be either customer dependent or product dependent like a proprietary product.

It is important to use published tools such as Economic Value to the Customer (EVC) when it comes to documenting and

illustrating the process and results.

AcmeCorp Example

Let’s calculate total costs to AcmeCorp and see how much cost savings result from choosing Company B’s offering.

TABLE 7. ACMECORP EXAMPLE COMPANY A/B PRICE COMPARISONS

Total cost savings for using Company B’s offering ranges from $100,000 to $300,000.

Now let’s return to consideration of EVC:

EVC = competitors price + positive differentiation value –negative differentiation value

Although Company B has higher manufacturing cost for their offering, this is not considered negative differentiation value

as manufacturing costs are hidden to AcmeCorp.

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TABLE 8. ACMECORP EXAMPLE EVC-DRIVEN PRICING BY SCENARIO

Step 4: Communicate Value Drivers

The final step of the Value-Based Process to develop the sales tools and the value selling approaches. The sales force needs

to understand the value of the product and be able to communicate the benefits to the customer. The tools should focus

on selling value, and not price. As mentioned earlier, the customer chooses a product/service for a reason. The sales

force is required to understand the customer’s motivation in making a decision and the value drivers associated with that

decision.

AcmeCorp Example

Communicate Company B’s value drivers to the sales force, explain how they are benefits to AcmeCorp, and how they can

translate into cost savings and quicker ROI for AcmeCorp. Set pricing guidance rules based on the benefits of offering and

communicate to sales force in the form of a policy. Don’t just offer one price, offer benchmarks the sales force can use.

EVC per unit is a good baseline for pricing guidance benchmarks. Make sure the sales force understand the impact each

price point has on company gross margin and customer value (cost savings).

TABLE 9. PRICING POLICY FOR COMPANY B’S OFFERING TO ACMECORP

Stretch Price Target Price Market Price Flo or Price Match Comp

Price (EVC) $25,000 $20,000 $17,000 $15,000 $10,000

Gross Margin to $340,000 $240,000 $180,000 $140,000 $40,000

Company B

Cost to $500,000 $400,000 $340,000 $300,000 $200,000AcmeCorp

Cost Savings to $0 $100,000 $160,000 $200,000 $300,000

AcmeCorp• Company B has • Company B has • Company B has • Company B has • Company BNotes to Sales

higher margin higher margin higher margin lower margin loses inForcethan Company than Company than Company A than Company margin butA while selling A while selling while selling half A but sells half sells half thehalf the number half the number the number of the number of number of

of units of units units units units• No cost saving • AcmeCorp • AcmeCorp • AcmeCorp • AcmeCorp

to AcmeCorp, saves in cost and saves in cost and saves big in cost saves big inbut holes are holes are drilled holes are drilled and holes are cost and holesdrilled 10 days 10 days earlier 10 days earlier drilled 10 days are drilled 10

days earlierearlier earlier

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Conclusion

Applying value-based pricing processes is an excellent way to increase profitability for the supplier and the buyer. Identifying

and quantifying value drivers is critical for value-selling to the customer. Value drivers are defined from the customer’s

viewpoint. In other words, value perception is directly related to customer perception. To improve your customer’s

perception of your product/service, you need to focus on value, not on price.

When a company focuses on price:

• The customer perceives that the product/service may be questionable.

• The product/service features and drivers are questionable – possibly a lack of quality.

• The company is destroying their own value position through self-cannibalization.

When a company focuses on value:

• The customer chooses the product/service for a reason. This reason could be the value drivers most important

to the customer.

• The company has a better understanding on their customer’s motivation in making a decision, and the value

drivers associated with that decision.

Price is the most effective way to pump more profit. Developing the right pricing processes is always a difficult task in

any organization. Educating price stakeholders and gaining culture adoption are important parts of the value-based pricing

adoption process. With the right sponsorship, and focus on customer value, a value-based pricing process will prove to be

an effective tool for long-term profitability improvement.

The following references were used in preparing this paper:

• Steve Haggett (Philips Healthcare), An Evolution to Value-Based Pricing, keynote presentation at

2010 Professional Pricing Society annual conference

• Mike Calogridis (The Pricing Practice), Mastering the Three Attributes of Value Based Pricing,

Powerpoint presentation

Contact

Daniel ReyesMark Allen Laurent TranAhmed MegahedValue Realization Partner Manager ManagerManager

Pricing & ProfitabilityGlobal Energy Consulting Pricing & ProfitabilityPricing & ProfitabilitySolutionsPractice SolutionsSolutionsdaniel.reyes@wipro.commark.allen@wipro.com laurent.tran@wipro.comahmed.megahed@wipro.com

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About the Author

Ahmed Megahed is a Manager of Pricing & Profitability Solutions at Wipro Technologies. He has a distinctive skill

set revolving around Business/Marketing Strategy and Information Technology, including: innovative problem solving, best

practices, proven leadership, account management, solid negotiation tactics, and exceptional communication with C-level

executives.

Ahmed’s depth of experience includes developing and documenting pricing and marketing strategies as well as business

process improvements for major companies. Most recently, Ahmed is helping develop the Wipro’s Pricing & Profitability

Solutions practice for the Energy, Natural Resources, and Utilities sectors, managing the relationship with vendors and

showing clients how to leverage pricing to increase profitability.

About the Wipro Pricing and Profitability Practice

With strong strategic alliances with the world’s top pricing system vendors, Wipro’s Pricing and Profitability Solutions

Practice offers a beginning-to-end approach for all aspects of pricing improvement and management for profit growth. Our

services include organizational readiness, process strategy, scientific analysis and optimization, technology selection, system

integration/implementation, and change management. Our consultants and analysts help customers realize quick value,

increase competitive advantage, and lower total cost of ownership through improvements in pricing strategies, processes,

and technologies.

About Wipro Technologies

Wipro Technologies, the global IT business of Wipro Limited (NYSE:WIT) is a leading Information Technology, Consulting

and Outsourcing company, that delivers solutions to enable its clients do business better. Wipro Technologies delivers

winning business outcomes through its deep industry experience and a 360 degree view of “Business through Technology”

– helping clients create successful and adaptive businesses. A company recognized globally for its comprehensive portfolio

of services, a practitioner’s approach to delivering innovation and an organization wide commitment to sustainability, Wipro

Technologies has 120,000 employees and clients across 54 countries.

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THANK YOU

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