Description:
A new
marketing approach to delivering I.T. infrastructure and management services
priced on a fixed cost per unit basis, such as:
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Cost
per subscriber (e.g.,. ISP)
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Cost
per call (e.g.,. Telecom Provider)
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Cost
per transaction (e.g., eCommerce or SAP)
Objectives:
-
Enable ABC to
differentiate its solution by leading with a new pricing paradigm that
emphasizes vendor accountability.
-
Develop the financial
infrastructure to address an emerging demand for “pay-per-use” computing.
-
Enable ABC to optimize
its revenue and profit per contract by selling more products and services
in one integrated solution.
-
Enable ABC to secure
accounts or markets identified as must “wins” by entering into revenue
sharing relationships.
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Program
Features:
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Single customer contract consisting of an integrated hardware, software,
service and financing solution.
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Long-term, multi-year engagement that is delivered as a monthly expense
based on actual transaction volume.
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Higher level of vendor accountability by ABC assuming both technology and
service level performance risk.
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Seamless technology refresh to help the customer stay current with
technology.
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Target Customers:
(for pilot phase)
New
business venture of enterprise customers or qualified start-ups:
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Requiring relatively large technology investment
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Providing a service rather than a product (i.e., recurring revenue stream as
opposed to a one time sale)
A.
A new wireless initiative of a major telecom
B.
Internet Service Provider providing:
1. Web
hosting
2.
Application hosting
3.
eCommerce
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Initial metric will be:
·
Number of subscribers
·
Number of calls
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Receiving a Standard or Prime credit rating from ABC’s credit unit
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Deal Qualification:
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ABC
must serve as the prime contractor of the project in order to control and
manage both the technical and implementation risk. An ABC project manager
and/or solution design architect must lead the design and implementation in
order to ensure that ABC has control over delivering the solution within the
designated timeframe and cost limits.
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Solutions must fall within ABC’s field of interest to ensure ABC has the
expertise and prior experience to deliver the solution.
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Utility deals must have the support of all participating divisions as well
as the lessor in order to qualify for transaction-based pricing. The
regional marketing centers must be involved in the sales process to assist
with securing the participating divisions support.
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Contract terms must be a minimum of 3 years and must have an option to
renew.
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Contracts must provide ABC with an exit clause for cause
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All
deals must have clearly defined service and performance levels and must
clearly state conditions and costs associated with cancellation for
convenience or cause.
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Minimum deals size:
·
United States, $5 million in US dollars
·
Asia/LA/Europe, $3 million in US dollars
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Pricing & Risk:
Process For Setting Pricing:
1.
Customer provides ABC with their projections:
¨
Worst case
¨
Most likely
¨
Best case
2.
ABC will establish three price levels:
¨
A price per unit
based on the most likely case
¨
A guaranteed
monthly minimum (floor)
¨
A maximum
monthly price (ceiling) to bound ABC’s upside.
3.
Contractually, ABC is committed to making available the capacity to
meet the customer’s projected most likely case, as a result, the most likely
projection will be used to establish the floor.
4.
Each transaction will be priced so that ABC captures our expected
profit at the customer’s most likely case.
5.
The division will do all pricing.
Floor/Minimum Price:
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ABC will
normally not risk more than our Gross Margin (GM = market price - COGS).
All contracts require a minimum monthly payment, regardless of the
customer’s actual transaction volume.
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In
order to ensure ABC recovers our Cost of Goods Sold (COGS), the
floor/minimum payment will be equal to ABC’s COGS.
Amount of
Risk:
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The
risk ABC will assume is the difference between the Market Price – COGS.
(COGS is equal to each divisions IC-OEM).
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ABC
has different IC-OEM for hardware, software and services. The IC-OEM is
further differentiated by actual hardware type.
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Since the mix of hardware, software and services will determine the amount
of risk; ABC will be able to take less risk on deals that have a higher
percentage of services and Non-ABC products.
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ABC
will only be responsible for installing the necessary equipment to meet the
customer’s ramp up volume, effectively minimizing ABC’s overall exposure.
Pricing
Guidelines:
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In
general, utility deals will be priced so that the return to ABC, if the
customer meets its most likely projections, will be greater than a net 30
sale (amount to be determined) to account for:
·
The
value of delivering an integrated bundled solution
·
The
value of per-unit transactional pricing
·
The
value to the customer of mitigating their volume/business risk
·
The
administrative cost of managing the deal
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The
risk premium will vary among deals depending upon ABC’s assessment of the
ventures likely hood of success. Per unit price will be determined on the
basis of a risk premium commensurate with the risk in the customer achieving
their most likely projection.
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The
min/max pricing will be based on the customer’s projections provided at the
inception of the contract. All contracts will have a re-price option to
accommodate the customer’s volume if it repeatedly exceeds the best case
scenario.
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Place Holder
ü
Confirm formula for determining price per unit.
ü
Confirm IC-OEM recovery, minimum price
ü
Deliver max price
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Eligible Products:
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ABC
base stations, Enterprise Switches, & associated peripherals
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ABC
software and services (including training)
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All
residuals will be lowered by one equipment classification.
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Non-ABC products are not subject to any risk pricing unless they are
acquired through ABC’s LPO (Leveraged Products Organization) and are sold at
a mark-up. The risk taken cannot be greater than the products gross
margin.
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TBD
limits on non-ABC components.
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Maximum amount of intangibles = 50%
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Recurring services will be treated as pass through.
End Of Term Options:
Profit Targets:
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Target ROE: 18%
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Admin premium to be added: FTE cost to administer
account 1.25% of net flow through billing
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Risk
premium: Appropriately priced for level of risk Shared proportionately
among all divisions
Accounting Classification:
Rental/Operating Lease
Delivery:
Credit:
Field Credit
Admin.:
Field
Commercial Risk Assessment & Pricing: Division
Accounting: Field
Contracts: Division
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