Vlerick Informeel 8 June 2009 How to manage pricing in a competitive environment

How to manage pricing in a competitive environment

Agenda Introduction Belgian Post International Role of pricing Price Management Pricing Excellence Lessons learned Recommendations Your questions

Introduction Belgian Post International

Role of pricing

Price Management

Pricing Excellence

Lessons learned

Recommendations

Your questions

1. Introduction BPI 1. Introduction BPI Belgian Post International manages international mail and parcel distribution for Belgian Post Solutions providing excellent and profitable services to all our customers in Belgium and abroad

Belgian Post International

manages international mail and parcel distribution for Belgian Post Solutions

providing excellent and profitable services to all our customers in Belgium and abroad

Agenda Introduction Belgian Post International Role of pricing Price Management Pricing Excellence Lessons learned Recommendations Your questions

Introduction Belgian Post International

Role of pricing

Price Management

Pricing Excellence

Lessons learned

Recommendations

Your questions

Role of Pricing Pricing is a specific function within marketing organization Role of pricing is to develop pricing strategy in line with business strategy in order to achieve sustainable growth Pricing responsibilities: Create standard price grids (list prices) Pricing policy with clear guidelines Guard margins Reporting of margins Analyze competitive info Pricing tool to support sales Sales applies commercial policy, and has certain autonomy Pricing supports sales in price negotiations

Role of Pricing

Pricing is a specific function within marketing organization

Role of pricing is to develop pricing strategy in line with business strategy in order to achieve sustainable growth

Pricing responsibilities:

Create standard price grids (list prices)

Pricing policy with clear guidelines

Guard margins

Reporting of margins

Analyze competitive info

Pricing tool to support sales

Sales applies commercial policy, and has certain autonomy

Pricing supports sales in price negotiations

Agenda Introduction Belgian Post International Role of pricing Price Management Pricing Excellence Lessons learned Recommendations Your questions

Introduction Belgian Post International

Role of pricing

Price Management

Pricing Excellence

Lessons learned

Recommendations

Your questions

Price Management Price Management Price excellence

Price Management

Price management: Common challenges Data Lack of accurate data No systematic monitoring of margins resulting in sales not always following pricing policy Difficulties to gather competitive info Visibility Increase visisbility of sales performance towards management through reporting Identify outliers Alignment on Goals Volume or margin focus Sales pressures

Price management: Common challenges

Data

Lack of accurate data

No systematic monitoring of margins resulting in sales not always following pricing policy

Difficulties to gather competitive info

Visibility

Increase visisbility of sales performance towards management through reporting

Identify outliers

Alignment on Goals

Volume or margin focus

Sales pressures

Price management: Common challenges Unwarranted variance across pricing Companies can decrease these gaps by managing pricing proactively Example: End-of-quarter discounts Meeting competition Reactive, exception-based price management, drives prices down Proactive, policy-based price management ties pricing to value Example: “ Loyalty” discounts for high share of wallet “ On-line”, low service discounts Develop proactive policies that set proper customer expectations

Price management: Common challenges

Unwarranted variance across pricing

Companies can decrease these gaps by managing pricing proactively

Example:

End-of-quarter discounts

Meeting competition

Example:

“ Loyalty” discounts for high share of wallet

“ On-line”, low service discounts

Experiences in price management Actions taken Standard price grids per market/segment (related to volume) Proactive Pricing Policy with clear guidelines Part of variable salary of sales linked to margin Develop thrustworthy reporting Lessons learned Find right balance between consistent pricing and freedom of sales Necessary to monitor and visualize margins (reporting) Manage pricing by policy, not by event

Experiences in price management

Actions taken

Standard price grids per market/segment (related to volume)

Proactive Pricing Policy with clear guidelines

Part of variable salary of sales linked to margin

Develop thrustworthy reporting

Lessons learned

Find right balance between consistent pricing and freedom of sales

Necessary to monitor and visualize margins (reporting)

Manage pricing by policy, not by event

Agenda Introduction Belgian Post International Role of pricing Price Management Pricing Excellence Lessons learned Recommendations Your questions

Introduction Belgian Post International

Role of pricing

Price Management

Pricing Excellence

Lessons learned

Recommendations

Your questions

Price Excellence Price Management Price Excellence

Price Excellence

Roadmap towards Pricing Excellence Price strategy and proactive policies Price analytics Pricing Process Pricing Technology Excellence in execution Price Management Price Excellence

Roadmap towards Pricing Excellence

Price strategy and proactive policies Goal In line with business and marketing strategy Pricing policy Common problems Pricing policy not always followed by sales Big price variances across deals Actions to consider Review pricing policy Align margins with market conditions Competitive info Feedback sales Hit ratio Optimize current bands and floor amounts Equally disperse the revenues between bands Add more steps/create narrower bands Follow up if margins are respected through systematic reporting

Price strategy and proactive policies

Goal

In line with business and marketing strategy

Pricing policy

Common problems

Pricing policy not always followed by sales

Big price variances across deals

Actions to consider

Review pricing policy

Align margins with market conditions

Competitive info

Feedback sales

Hit ratio

Optimize current bands and floor amounts

Equally disperse the revenues between bands

Add more steps/create narrower bands

Follow up if margins are respected through systematic reporting

Price analytics Goal Data structure and availability of data are critical to succes Clean data on cost elements, revenue, margin Pricing competition Hit ratio Price and margin dispersion reporting Common problems Data lacking Wrong data Difficult to identify price leakage Actions to consider Make 1 person responsable for keeping track on all cost elements + revenue linked to it (centralized file) Create price – margin dashboard Develop pricing tool Show price leakages through price waterfall

Price analytics

Goal

Data structure and availability of data are critical to succes

Clean data on cost elements, revenue, margin

Pricing competition

Hit ratio

Price and margin dispersion

reporting

Common problems

Data lacking

Wrong data

Difficult to identify price leakage

Actions to consider

Make 1 person responsable for keeping track on all cost elements + revenue linked to it (centralized file)

Create price – margin dashboard

Develop pricing tool

Show price leakages through price waterfall

Pricing process Goal Improve key processes to ensure organizational alignment and application of the policies Refresh pricing strategy (closed loop) Common problems Process is not a closed loop Lack of competitve info Insufficent feedback from sales concerning lost deals Actions to consider Create function of CIMI Develop template for follow up of quote results + make someone accountable for follow up

Pricing process

Goal

Improve key processes to ensure organizational alignment and application of the policies

Refresh pricing strategy (closed loop)

Common problems

Process is not a closed loop

Lack of competitve info

Insufficent feedback from sales concerning lost deals

Actions to consider

Create function of CIMI

Develop template for follow up of quote results + make someone accountable for follow up

4. Pricing process Closed loop approach needed to obtain & sustain profitable growth Enables organisation to refresh pricing strategy Analyse Optimize Quote sales Manage pricing Calculate optimized prices (Tool) Communicate Execute Set list prices Pricing policy Monitor Reporting Price-margin dashboard Competitive info

Closed loop approach needed to obtain & sustain profitable growth

Enables organisation to refresh pricing strategy

Pricing Technology Goal Optimization of pricing tool Overview of all possibilities Predefined margins Data for reporting Consistency in pricing decisions/ Reduce unwarranted variations Improve efficiency and effectiveness of sales for pricing decisions Develop strategic pricing tool and integrated tactical pricing tool Common problems Convince sales to use this tool Actions to consider Train sales to use this tool Explain the benefits for them Leverage on this tool to develop integrated strategic and tactical pricing tool

Pricing Technology

Goal

Optimization of pricing tool

Overview of all possibilities

Predefined margins

Data for reporting

Consistency in pricing decisions/ Reduce unwarranted variations

Improve efficiency and effectiveness of sales for pricing decisions

Develop strategic pricing tool and integrated tactical pricing tool

Common problems

Convince sales to use this tool

Actions to consider

Train sales to use this tool

Explain the benefits for them

Leverage on this tool to develop integrated strategic and tactical pricing tool

Excellence in execution Goal Segmentation based pricing Pricing is considered as a strategic capability, central to strategy and focused on value proposition Common problems Convince sales of fact that price elasticity is important within segment, but not between segments Market price tends towards the lowest price in segment Lowest path of resistance taken by sales Actions to consider Give sales insight in customer needs in different segments Try to move from “cost+” towards “value pricing” Train sales to protect price (value selling)

Excellence in execution

Goal

Segmentation based pricing

Pricing is considered as a strategic capability, central to strategy and focused on value proposition

Common problems

Convince sales of fact that price elasticity is important within segment, but not between segments

Market price tends towards the lowest price in segment

Lowest path of resistance taken by sales

Actions to consider

Give sales insight in customer needs in different segments

Try to move from “cost+” towards “value pricing”

Train sales to protect price (value selling)

Excellence in execution 3 pillars of value proposition Create added value Communicate added value Capture added value Marketing Marcom Pricing (Critical step*) *When disconnection between value and pricing  “Money left on the table” Train sales to protect price (value selling) Value Management = Change management

Excellence in execution

3 pillars of value proposition

*When disconnection between value and pricing  “Money left on the table”

Train sales to protect price (value selling)

Value Management = Change management

Agenda Introduction Belgian Post International Role of pricing Price Management Pricing Excellence Lessons learned Recommendations Your questions

Introduction Belgian Post International

Role of pricing

Price Management

Pricing Excellence

Lessons learned

Recommendations

Your questions

Lessons learned First get basics right (accurate data) Find right balance in consistency of offering and freedom of sales Reduce freedom of sales in economic downturn (avoid “price contamination”) Monitor and visualize revenue and contribution margin Transparency of sales performance can be enlightening Provide sales with user friendly pricing tool Avoid errors Reduce price variance

Lessons learned

First get basics right (accurate data)

Find right balance in consistency of offering and freedom of sales

Reduce freedom of sales in economic downturn (avoid “price contamination”)

Monitor and visualize revenue and contribution margin

Transparency of sales performance can be enlightening

Provide sales with user friendly pricing tool

Avoid errors

Reduce price variance

Lessons learned Align pricing policy to market conditions Manage pricing by policy, not by event Market price tends towards the lowest price in segment Try to move from “cost+” towards “value pricing” Value Management = Change management

Lessons learned

Align pricing policy to market conditions

Manage pricing by policy, not by event

Market price tends towards the lowest price in segment

Try to move from “cost+” towards “value pricing”

Value Management = Change management

Agenda Introduction Belgian Post International Role of pricing Price Management Pricing Excellence Lessons learned Recommendations Your questions

Introduction Belgian Post International

Role of pricing

Price Management

Pricing Excellence

Lessons learned

Recommendations

Your questions

Recommendations Crucial to have buy-in from senior management Involve people of sales from in the beginning Use an external partner/consultant Facilitates your job Leverage on their experience More power towards management and sales Tip : negotiate on fee 

Recommendations

Crucial to have buy-in from senior management

Involve people of sales from in the beginning

Use an external partner/consultant

Facilitates your job

Leverage on their experience

More power towards management and sales

Tip : negotiate on fee 

Agenda Introduction Belgian Post International Role of pricing Price Management Pricing Excellence Lessons learned Recommendations Your questions

Introduction Belgian Post International

Role of pricing

Price Management

Pricing Excellence

Lessons learned

Recommendations

Your questions

Q&A ?

Q&A

?

Back up slides

Pricing tool (day-to-day)

Review pricing policy Price Bands Today Proposed Price Bands Transactions/ Customers in band Transactions/ Customers in band