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Pricing In Economic Downturn Francois Delvaux

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proactive pricing in times of economic downturn

proactive pricing in times of economic downturn

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Pricing In Economic Downturn   Francois Delvaux Pricing In Economic Downturn Francois Delvaux Presentation Transcript

  • Pricing in Times of Economic Downturn February, 2009 Francois Delvaux Director, The House of Marketing
  • Introduction: The House of Marketing’s pricing practice team collaborates with companies to grow their top and bottom line and build value management capabilities
    • Helping the company make relevant strategic choices
      • Market assessments and finding growth opportunities
      • Segmentation and positioning strategy
      • Pricing opportunity assessment and design of pricing strategy
      • Employer branding strategy
    I. Strategic Marketing II. Go-to-Market III. Organization capabilities
    • Building and activating the go-to-market strategies
      • Implementing go to market strategies across 4 Ps
      • Implement value based pricing & proactive price management
      • Customer experience and customer loyalty initiatives
      • Integrated marketing campaigns
    • Sales and marketing organization building
      • Organization and structure
      • Pricing and value management competencies development
      • Customer Process Management
      • Customer relationship management (CRM)
      • Senior coaching and change management
    IV. Performance Management
    • Good execution of strategy and sound business decisions
      • Customer Life Time Value Management
      • Return on Marketing Investments or assets (ROMI/ROMA)
      • Performance metrics and marketing dashboards
  • How We Help Companies Improve Its Profitability
    • Price opportunity assessments (POA):
    • Uncover drivers of missed price realization, potential price/value misalignments.
    • Identify quick wins & value capture growth opportunities. Provide business case and roadmap.
    Diagnostic / find money Strategy Support Activate Strategy Enhance Capabilities
    • Policy: Develop proactive policies and actionable tactic to manage sources of price leakage and enhance price realization
    • Value understanding: Understanding and quantifying value created for customers and use these insights to launch a new product, evolve a current offer and tweak a price structure
    • Price menu for current or new products/ services: Develop or enhance customer offerings and price menu to more profitably serve and grow customers
    • Pilot and roll-out: Implementation of pricing strategy, pilots, coaching of market facing teams, ROI tracking
    • Account preparation: Work with sales teams to prepare for upcoming account renegotiations or major launches
    • Pricing process: Design and deploy price management processes, line of sight mechanisms
    • Program: Design and deploy capability programs to build internal price or value management capabilities
    • Train and codify: Coaching an organization about value based pricing principles (sales, product mgrs, marketing). Help organization deploy value-based price management skills (using tools, applied training, coaching, and change management)
  • Objective
        • Today’s environment
        • Common Pitfalls of Pricing
        • Proactive Pricing in Down Turn
  • Pricing in The News
    • InBev increases prices for third time this year *
    • 07/01/2009, Het Laatste Nieuws
    • NMBS increases tariffs * 01/02/2009, De Standaard
    • Kinepolis: Compensé par une augmentation du prix moyen des tickets ... 21/02/2009, L’Echo
    Increasing price Delhaize launches concept “low cost” store red market 21/01/2009, De Tijd Danone launches discount range of yoghurt 12/09/2008, Le Figaro Punch management will work four fifths 10/02/2009, De Standaard VW stops its production for a week 23/02/2009 * Note: Common reasons given are increased costs of raw materials and other resources, reduced sales and large inflation Lowering price or price image Cutting Costs $ $
  • THOM Pricing Survey: Pricing is top of mind & perceived as difficult to change in market
    • 50% of marketeers think their customers will become more price sensitive because of current economical situation
    • 32% said prices will definitely have to be lowered in coming year
    • Only 14% of respondents said would raise prices , and in 10% of the cases, would raise prices less than the increase in costs, putting additional strain on margin
    • And yet… 62% of respondents say their customers perceive their product as offering a unique solution and are willing to pay a premium for it
    • 48% agree that it is hard for them to introduce price increases
    • 33% of respondents confirms that there are typically conflicting agendas or priorities around pricing decisions
    Source: THOM Pricing Survey 2009 – preliminary results of 700 participants
  • Objective
        • Today’s environment
        • Common Pitfalls of Pricing
        • Proactive Pricing in Down Turn
  • Common Pitfall: “Our price levels is the root cause of our problems… Price Level … and is, therefore, the only way to overcome it.”
  • Is this your company? PITFALLS LIKELY OUTCOMES Creating higher (or unrealistic) goals for the direct or indirect sales teams Defending prices by offering free value-added services Offering better price to customers who ask for a lower price
    • Higher pressure in market to gain or defend market share/volume
    • Increased risk of price wars
    • Reduces the perception of value of the company’s services
    • Lowers margins because of increased costs to serve
    • Rewards a customer’s aggressive price behavior
    • Encourages suppliers to compete against one another
    1 2 3
  • Is this your company? Discounting a high-value offering to attract the price sensitive customers Systematic lowering of prices in market to boost sales volume Price levels based mainly on costs and adjusting price when cost changes
    • Decline in margins
    • Destruction of value in the market
    • Jeopardize current brand position
    • Encourage competitive activity
    • Possibly reducing margin pool
    • Risk future price setting efforts
    • Creates missed opportunities to align price to value
    • More price conscious customers
    4 5 6 PITFALLS LIKELY OUTCOMES
  • Putting everything together, pricing’s success in reality depends on many elements … Reality: Pricing is only the tip of the iceberg, Price Level And many elements are part of pricing’s success Value Communication Price and Offer Structure Value Creation Pricing Policy Organizational Alignment + Sound Value & Price Management
  • Objective
        • Today’s environment
        • Common Pitfalls of Pricing
        • Proactive Pricing in Down Turn
  • Your Chess board… Price Paid Value Received high low low medium high medium Price relative to Value C Missed Opportunities B Unharvested Value A
  • Proactive pricing activities you can do in times of economic downturn
    • Reinforce the value you provide in the market
    • Prevent your value to become commoditized
    1
    • Adapt offer to grow among different targets
    • Change aspects of cost or value to profitably serve target
    2
    • Have good controls on discounts and incentives
    • Ensure when you flex done proactively & organization disciplined
    3
    • Make choices on which customers to invest in
    • Wisely allocate your scare resources and have real “partners”
    4
    • Prepare organization and make price adjustments
    • Enable organization to implement price changes in market
    5
    • Symptoms
    • Organization does not understand the differential value it provides in market
    • Feature -> Benefit -> value
    • Sales does not have the ability (skills, tools, etc.) to explain differential value to customers
    • Not effectively communicating value to change customer’s perceptions
    • Pricing of new products not aligned with the differential value created
    Reference Value € 0,85 / kg Next best competitive Alternative internal mixing costs Less Defective € 0,08 Less WIP Scrap € 0,07 Your positive differentiation Less Freight € 0,03 Fewer Material Rejection € 0,05 Goal: Sell on value not on price
    • Reinforce the value you provide in the market
    • Prevent your value to become commoditized
    1
  • Goal: Frame the reference
    • Reinforce the value you provide in the market
    • Prevent your value to become commoditized
    1
    • Adapt offer to grow among different targets
    • Change aspects of cost or value to profitably serve target
    2 High Low Received Value Segment and Size A B C D Setting price here … leaves money on the table and communicates that value does not have to be paid for… 1 2 … .and misses volume growth opportunities by over pricing these customers out of the market 3
    • Adapt offer to grow among different targets
    • Change aspects of cost or value to profitably serve target
    2
    • Goal:
    • Capitalize on segment differences
    • Create flexible offer - with different levels of value and price
    • Facilitate choices
    • Sell high value/high cost services a la carte
    INDEPENDENT CHOICE ACTIVE CHOICE PROFESSIONAL CHOICE PRICING ORDERING FULFILLMENT HANDLING FEE FREIGHT PRE-SALES TECH SUPPORT POST SALES TECH SUPPORT FINANCING SALES SUPPORT Must order on - line Can use any method of ordering Can use any method of ordering Within two business days Within one business day Same day For orders less than € 1000 For orders less than € 500 For orders less than € 100 All freight expenses charged Free freight for orders more than € 2000* Free freight for orders more than € 1500* Not Included Requires minimum purchase of € 50k per quarter Requires minimum purchase of € 30k per quarter Not Included Not Included Requires minimum purchase of € 30k per quarter 10 - day net terms 30 - day net terms 30 day net terms Available for complex orders only Available for placement pricing, availability, and order verification Available for placement pricing, availability, and order verification Receive most aggressive pricing Receive aggressive pricing Receive less aggressive pricing
    • Adapt offer to grow among different targets
    • Change aspects of cost or value to profitably serve target
    2
    • Goal:
    • Capitalize on segment differences
    • Create flexible offer - with different levels of value and price
    • Facilitate choices
    • Sell high value/high cost services a la carte
  • % Off list prices Volume Example of unwarranted variance
    • Symptoms
    • Silos and incentives in organization driving misalignment on pricing goals
    • High price variability leading to low Average Selling Prices (ASPs)
    • The number of “special” pricing deals higher than required
    • Price leakage larger than generally understood & from unexpected sources
    • A small % of transactions account for a significant share of price leakage
    • Discounting policies not reflecting all related costs
    Goal: Address unwarranted variance and have proactive policies to drive desired behaviors
    • Have good controls on discounts and incentives
    • Ensure when you flex done proactively & organization disciplined
    3
    • Goal: Manage your price waterfall
    • Identify “where” and “how much” money is being deducted from the list price
    • Linking quantified price “leaks” to specific points in the price management process
    Pocket Price
      • The List Price net of all known adjustments (discounts etc)
      • The actual revenues realized
    Price (Euros)
    • Have good controls on discounts and incentives
    • Ensure when you flex done proactively & organization disciplined
    3
    • Make choices on which customers to invest in
    • Wisely allocate your scare resources and have real “partners”
    4
    • Symptoms:
    • Winning a large share of complex, high cost-to-serve customers
    • True cost-to-serve & pricing not in line
    • Losing low cost-to-serve customers
    • Pricing decisions creating sub-optimal loading of capacity & use of resources
    • Price policies do not address high cost to serve behaviors
    • Not factoring in opportunity costs or impact of pricing decisions
    Price Product Cost Service Costs Price levels & policies that discourages costly behaviors Price structure that aligns price with value & cost-to-serve cost Goal: Pricing, policies and structure that protects or discourages costly behaviors Goal: Manage behaviors Price
  • High VC: Low CM High FC: High CM Opportunity cost: CM foregone Drive Price Drive Volume Capacity Optimization Cost Type Strategic Objective
    • Goal:
    • Defining objectives and knowing sales break evens per pricing action
    • Understanding how your costs Change with changes in Sales
    • Having relevant checks and balances within organization
    • Evaluation of effectiveness of pricing actions
    • Symptoms:
    • Lack of pricing ownership and accountability in organization
    • Not understanding sales break even when change price
    • Not anticipating market responses
    • Not preparing ways customers can proactively adapt their behaviors to avoid price changes
    • Bad timing of raw material cost increase pass through
    • Prepare organization and make price adjustments
    • Enable organization to implement price changes in market
    5
  • Take your own “pricing in downturn” diagnostic
    • Visit our web site to take part in survey
    • HTTP://WWW.THOM.EU
    • Complete 16 pricing in downturn quiz and see where price and margin realization opportunities exist
    • Leverage existing tools and THOM’s experiences
    • Share your learnings
  • Sample sectors we focus on when it comes to pricing and value management Logistics and distribution Financial Medical equipment Software and ICT
      • Understanding value drivers
      • Getting paid for services
      • Realigning offerings to capture more volume or margins
      • Changing pricing policies, price metrics, pricing models
      • Segment based pricing
      • Price menu development
      • Introducing new pricing models to market
      • Understanding and quantifying value for current/new products
      • Developing prices menus
      • Coaching sales teams to sell value proposition
      • New product pricing
      • Changing pricing metrics
      • Enhancing value selling activities
      • License based pricing
    Examples of interventions
  • How to get in contact:
    • Pricing and Value Management
    • François Delvaux 
    • Mobile +32 (0)495 24 29 86
    • E-Mail [email_address]
    The House of Marketing Schuttersvest 75 B-2800 Mechelen Belgium Office +32 (0)15 45 05 50 Fax +32 (0)15 45 05 51 www.thom.eu www.mingle.be