Deploying Best Practices in Price Increase Execution Download the full document at: www.gazhoo.com

EXECUTIVE SUMMARY This document describes the best practices needed to execute a successful price increase. In our experience with pricing engagements, XYZ has found that: In many industries, price is a crucial lever for driving higher profitability. Nevertheless, many companies do not use a systematic process for price management. Applying best practices to the tactical execution of a price increase can significantly improve yield and help the organization to “kick-start” a successful long-term price management system. A combination of skills, resolve (will), targeted external communications, and internal controls are needed to achieve optimal results. A number of best practices presented here can be used to build these capabilities. The sense of urgency sparked by a price increase creates ideal conditions for a tactical execution team to operate. The need to stay on a very disciplined timeline and hit aggressive deliverable targets forces a level of commitment that helps drive institutionalization of the best practices. Download the full document at: www.gazhoo.com

This document describes the best practices needed to execute a successful price increase. In our experience with pricing engagements, XYZ has found that:

In many industries, price is a crucial lever for driving higher profitability. Nevertheless, many companies do not use a systematic process for price management. Applying best practices to the tactical execution of a price increase can significantly improve yield and help the organization to “kick-start” a successful long-term price management system.

A combination of skills, resolve (will), targeted external communications, and internal controls are needed to achieve optimal results. A number of best practices presented here can be used to build these capabilities.

The sense of urgency sparked by a price increase creates ideal conditions for a tactical execution team to operate. The need to stay on a very disciplined timeline and hit aggressive deliverable targets forces a level of commitment that helps drive institutionalization of the best practices.

CONTENTS The importance of price increase execution Best practices in executing price increases Deployment of best practices Examples of best practices in price increase execution Download the full document at: www.gazhoo.com

The importance of price increase execution

Best practices in executing price increases

Deployment of best practices

Examples of best practices in price increase execution

IN MANY INDUSTRIES, PRICE IS A CRUCIAL LEVER TO ACHIEVING HEALTHY PROFIT MARGINS Industry examples Source: XYZ Pricing Practice, Compustat (2000) Profit improvement Percent 1% increase in price leads to Automobile parts 16.7 Basic chemicals 8.1 Industrial controls 7.9 Semiconductors 3.9 S&P 900 6.5 Download the full document at: www.gazhoo.com

Automobile parts

Basic chemicals

Industrial controls

Semiconductors

S&P 900

HOWEVER, THE TYPICAL APPROACH TO PRICE INCREASE EXECUTION OFTEN RESULTS IN POOR BENEFIT CAPTURE Examples of typical results Typical approach Poor external communications Broadcast announcement letter only sent to current customers New catalog/price lists mailed to customers Press release sent to trade journals, often after execution date Electrical components manufacturer Only 35% of price increase realized Relationships with distributors severely strained Source: XYZ Pricing Practice Lack of control Infrequent monitoring over sales force actions during price increase Poor knowledge of strategic/critical customers Increase compromised through non-price givebacks Little insight into competitive moves Failure to train/motivate salesforce No internal communication, coordination, or preparation of sales force Commodity chemicals manufacturer 20-30% of price increase realized Price increase sustained for only 1-2 months Download the full document at: www.gazhoo.com

Poor external communications

Broadcast announcement letter only sent to current customers

New catalog/price lists mailed to customers

Press release sent to trade journals, often after execution date

Electrical components manufacturer

Only 35% of price increase realized

Relationships with distributors severely strained

Lack of control

Infrequent monitoring over sales force actions during price increase

Poor knowledge of strategic/critical customers

Increase compromised through non-price givebacks

Little insight into competitive moves

Failure to train/motivate salesforce

No internal communication, coordination, or preparation of sales force

Commodity chemicals manufacturer

20-30% of price increase realized

Price increase sustained for only 1-2 months

TO REALIZE SUBSTANTIAL PRICE INCREASE BENEFITS, AN EFFECTIVE PRICE MANAGEMENT SYSTEM MUST BE IN PLACE Execute Learn Plan Source: XYZ Pricing Practice Conduct price increase with best available tools and a dedicated team Determine strategy (e.g., timing, amount, which customers/sub-markets) and execution tactics (e.g., communications, likely scenarios) for next price increase Assess and improve price management tools and processes Re-evaluate customer/product profitability and market position Download the full document at: www.gazhoo.com

Conduct price increase with best available tools and a dedicated team

Determine strategy (e.g., timing, amount, which customers/sub-markets) and execution tactics (e.g., communications, likely scenarios) for next price increase

Assess and improve price management tools and processes

Re-evaluate customer/product profitability and market position

A PRICE INCREASE EXECUTION IS THE FIRST STEP TO “KICKSTARTING” AN EFFECTIVE PRICE MANAGEMENT SYSTEM Price increase Activities Develop and deploy “first-cut” best practices Assess results of price increase Refine “first-cut” price increase process, tools, and organization Plan and execute subsequent price increase with refined price management system Price increase Download the full document at: www.gazhoo.com Execute price increase Institute learnings Execute with best practices Plan price increase

Develop and deploy “first-cut” best practices

Assess results of price increase

Refine “first-cut” price increase process, tools, and organization

Plan and execute subsequent price increase with refined price management system

DEPLOYING BEST PRACTICES IN EXECUTION HAS NEAR-TERM BENEFITS … Source: XYZ Pricing Practice Client industry ROS improvement Percent Industrial hydraulics Marine chemicals Electrical controls Tires Results achieved in just 1 year Better fact-based conversations with customers Volume losses weighted to lower profitability accounts Quicker response to competitor activity Best practice Benefits Download the full document at: www.gazhoo.com CLIENT EXAMPLES

Better fact-based conversations with customers

Volume losses weighted to lower profitability accounts

Quicker response to competitor activity