Pricing Strategy Workshop “It’s not just about the price” Download the entire document at: www.gazhoo.com

Objectives Establish the importance of having a structured approach to pricing Describe the characteristics of organizations that have had success in pricing Describe tactical solutions to some specific pricing topics important to Industrial Manufacturer Conduct discussions regarding opportunities for Industrial Manufacturer to improve pricing practices Establish a plan for moving forward with pricing pilots Today’s session has several objectives Download the entire document at: www.gazhoo.com

Establish the importance of having a structured approach to pricing

Describe the characteristics of organizations that have had success in pricing

Describe tactical solutions to some specific pricing topics important to Industrial Manufacturer

Conduct discussions regarding opportunities for Industrial Manufacturer to improve pricing practices

Establish a plan for moving forward with pricing pilots

Characteristic #2: Focus on the Value They Provide to Customers Sample Approach for Capitalizing on Customer Value Successful pricers focus on understanding what the customer values Assess potential pricing levels Understand what customers value Develop, re-vamp, re-position products Create marketing and communi-cations materials Set pricing to capture customer value Train & incentivize customer-facing personnel to sell value Download the entire document at: www.gazhoo.com Encouraging and training sales reps to break old habits and sell on value will be facilitated by accompanying sales force incentives Several mechanisms can be used: Conducting surveys Assessing past customer spending patterns Analyzing future direction of customer markets At these points, Industrial Manufacturer will begin to decide what type of contribution margin could potentially be captured

Sample Approach for Capitalizing on Customer Value

Several mechanisms can be used:

Conducting surveys

Assessing past customer spending patterns

Analyzing future direction of customer markets

Process Step 5: Determine Price & Verify Strategy (continued) When setting prices, a company must be aware of its product’s price band. By having multiple price points within the price band, companies can maximize volume and margin Kenan-Flagler Business School, Jay Klompmaker Specialty Engineered commodity ? Wide band Width varies Threshold Commodity Very wide band Narrow band Low High High Low Customer Perception of Value Competitive Intensity Causes of price bands Supplier-Driven: “cost to serve” differences, uneven competitive intensity, price structure Customer-Driven: buying process, uneven switching costs, imperfect knowledge, uneven economic value Price Number Of Sales Additional Margin Additional Volume Perceived Price Band Actual Price Band

Causes of price bands

Supplier-Driven: “cost to serve” differences, uneven competitive intensity, price structure

Customer-Driven: buying process, uneven switching costs, imperfect knowledge, uneven economic value

Process Step 6: Execute Price Decision & Monitor Impact Propose Pricing Confirm Pricing Communicate pricing internally Communicate pricing externally Develop global/geographic pricing Develop segmented pricing Develop pricing discount schedules Develop promotional pricing schedules Create Rebate Polices Test New Price Conditions Check with legal counsel Receive approvals (if necessary) Update information in catalogs, brochures and sales collateral Update information systems to reflect new price Update information on website Inform the sales people of the new prices Convey value to customers Convey new price to customers Convey new price to necessary channel partners (distributors,resellers,brokers, supply chain, etc) Key Questions How do we communicate pricing to our customers? What is our contribution margin versus our targets? Where is our market share versus our targets? Where is our sales revenue versus our target? Do we need to modify our pricing strategy? Measure Performance Volume Changes Competitive reaction Customer Satisfaction and defections Revenue and Profit Impact Bid success rate Note: Though not depicted as such, this process is iterative as pricing should be reviewed periodically to ensure that it still makes sense for the organization Finally, the detailed pricing decisions can be made and monitored Monitor Implementation of Pricing Strategy Download the entire document at: www.gazhoo.com

Develop global/geographic pricing

Develop segmented pricing

Develop pricing discount schedules

Develop promotional pricing schedules

Create Rebate Polices

Test New Price Conditions

Check with legal counsel

Receive approvals (if necessary)

Update information in catalogs, brochures and sales collateral

Update information systems to reflect new price

Update information on website

Inform the sales people of the new prices

Convey value to customers

Convey new price to customers

Convey new price to necessary channel partners (distributors,resellers,brokers, supply chain, etc)

How do we communicate pricing to our customers?

What is our contribution margin versus our targets?

Where is our market share versus our targets?

Where is our sales revenue versus our target?

Do we need to modify our pricing strategy?

Measure

Performance

Volume Changes

Competitive reaction

Customer Satisfaction and defections

Revenue and Profit Impact

Bid success rate

Refrigeration Pricing Game Plan Retail Price bands to be developed by Product Management Channel Guidelines $X assumption at estimated retail ranges over $1000 Retail Op Managers to develop operational pricing to achieve margin $ and margin % objectives Contract Price to support profitability packaging sales (x% minimum required) ABD pricing to be tied to “C” band NAC on marketing calendar Other prices to be set by Region Managers; margin $, margin %, and unit objectives must be met Private Label Pricing to be consistent with established brand roles No price below brand roles without agreement of Product Management Sears organization will manage price to obtain margin $, margin %, and unit objectives Minimum Mgn% Price Band at Est. Retail Target Customer “ A” x% Telesales and region FAD accounts “ C” y% Premier Plus and region M/C “ D” z% Key Accounts and National Accounts “ E” zz% Brand Central, Montgomery Ward, Circuit City Download the entire document at: www.gazhoo.com

Retail

Price bands to be developed by Product Management

$X assumption at estimated retail ranges over $1000

Retail Op Managers to develop operational pricing to achieve margin $ and margin % objectives

Contract

Price to support profitability packaging sales (x% minimum required)

ABD pricing to be tied to “C” band NAC on marketing calendar

Other prices to be set by Region Managers; margin $, margin %, and unit objectives must be met

Private Label

Pricing to be consistent with established brand roles

No price below brand roles without agreement of Product Management

Sears organization will manage price to obtain margin $, margin %, and unit objectives

Topic OEM.1: Managing Price When OEMs Appear to Have the Leverage * Detail on this topic follows this slide Legend Low applicability High applicability Challenges Tactics Degree of applicability to each step in the pricing process Strategy Execution 1 2 3 4 5 6 1. Differentiating offerings is difficult Identify unique characteristics of offerings by emphasizing product attributes and service features rather than price* 2. Once identified, selling the value to customers can present issues Communicate the value of the product offering and train the sales force on how to enforce the messages* 3. Increased use of Auctions reduces all commodities to “lowest common denominator” The only way to do well in these auctions is by either differentiating the product prior to the auction or by going to the auction with a very clear strategy* 4. Buyers armed with significant purchasing power are on a program to commoditize all the supplier’s products Products that cannot be differentiated will be relegated to commodity status and will compete purely on price 5. Factors such as delivery, quality, favorable payment terms, etc. that were differentiating tools have become table stakes now Clearly understand what are differentiating characteristics – segmented by customer, and product