The Top Right Quadrant:
The Strategic and Tactical Answer to
Profitable Pricing
October 28, 2010
Ritesh Sheth, Director
Pr...
PPS Conference Confidential 2
Executive Summary
This presentation provides an opportunity to create and add value to an
or...
PPS Conference Confidential 3
Marketing Strategy competencies include a host of value-add
activities and deliverables to p...
PPS Conference Confidential 4
Pricing Related Finance Operations competencies provide an ongoing
view of the business reve...
PPS Conference Confidential 5
Here is a proposed timeframe for implementing both the strategic
and operational pricing com...
PPS Conference Confidential 6
Pricing Strategy
Margin %
WAPP
Margin $
WAPP = Weighted Average Price Position
Richness of C...
PPS Conference Confidential 7
Dell Confidential
For Internal Use Only
Pricing Formulas
Price = LP * ( 1 - DR%)
LM% = 1 – C...
PPS Conference Confidential 8
The goal here is to help drive the sales team to upsell and achieve
sales within the top rig...
PPS Conference Confidential 9
WAPP
Level of Offering
List / Product
Margin $
Min Avg Rich
1.0
1.5
2.0
100%
60%
30%
Disc %
...
PPS Conference Confidential 10
Here’s the math to apply for the example presented in the previous
slide – below shows the ...
PPS Conference Confidential 11
Business Case Template
• Customer:
• Business Case / Project:
• Acquisition / Retention:
• ...
PPS Conference Confidential 12
P&L Objectives and Impact
 Revenue Adjustments and Concessions
– These are essentially giv...
PPS Conference Confidential 13
Negotiating Techniques (BATNA)
 Best Alternative To a Negotiated Agreement (BATNA)
 Striv...
PPS Conference Confidential 14
Top Ten Questions from Management
 If negative margin: What’s the strategy to make money i...
PPS Conference Confidential 15
Auction Pricing Strategies
Purpose: Participate in competitive online bidding
Goal: Identif...
PPS Conference Confidential 16
Competitive Intelligence
 Key sources of marketing data
– Sales makers
– Customer visits (...
PPS Conference Confidential 17
Pricing for Product Life Cycles
 Product Development typically targets a specific timefram...
PPS Conference Confidential 18
Pricing Techniques – Fixed Price
 Fixed price – is a negotiated price for a specified prod...
PPS Conference Confidential 19
Price Assurance
 Price Assurance is intended to give customers the
confidence that a suppl...
PPS Conference Confidential 20
Comparing discount percentage off of list across potential partners is
not an apples to app...
PPS Conference Confidential 21
Benefit to our Customers:
1. Easy to Evaluate
2. Assured good pricing for long term deals
3...
PPS Conference Confidential 22
Last Attended Pricing Conference Agenda
 10/24
– Day 1 Workshop: The Keys to Unlocking You...
PPS Conference Confidential 23
Last Attended Pricing Conference Best Practices – Pricing Org
World Class Pricing Process M...
PPS Conference Confidential 24
Pricing Conference Best Practices – Impact of Move
Revenue 100 99
COGS 60 60
SG&A 32 32
NI ...
PPS Conference Confidential 25
Pricing Conference Best Practices – EVE
Economic Value Estimation
Positive (+)
Differentiat...
PPS Conference Confidential 26
Contact Info
Ritesh M. Sheth
Director, Pricing Strategy
Hoover’s, a Dun and Bradstreet Co.
...
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  •  1Title: The Top Right Quadrant: The Strategic and Tactic Answer to Pricing StrategyHow can you not only communicate, but also implement a pricing strategy that takes into account attach rates, list pricing, discount rates, competitive indexing, upwelling, and margin analysis? This presentation will provide an approach to answer these questions in detail Attendees will learn: Pricing strategy related to  Bio:Ritesh has over twelve years of combined consulting experience in finance, pricing strategy, financial forecasting, profitability analysis, account management, sales, marketing strategy, business process analysis and systems integration. Over the past 6 years, Ritesh provided controllership, pricing strategy, and special pricing to financially guide multi-billion dollar verticals and Lines of Businesses for high-technology global customers, structured multimillion dollar global deal P&Ls for executive level review, and negotiated pricing, contracts, and presented financial overviews to customers during executive briefings.His most recent research and development is on financial modeling.
  • 2setting the Deal Pricing Strategy, creating a Deal Review Desk, building Account and Segment P&Ls, analyzing Large Deals, providing Sales Training, and ensuring Controllership.Convert paragraphs above to bullets / tables, conciseSet Deal Pricing Strategy, Deal Review Desk, Account and Segment P&Ls, Large Deals Analysis, Sales Training, and Controllership
  • 3 Views of in a table: strategic / marketing – provide information to ground
  • 4Operational / finance
  • 5
  • 6 Simplify:This is a tool to help us quote the right price – or selling deals at the right price
  • 7X = $1,000 Current Discounted L2 License + ($1,732 L2 + AH Add-on List - $1432 L2 List) * (1 – 10%)X = $1,270 L2 + FR Add-on Discounted BundleFR Add-on: $650 Apply $650 FR Add-on upsell Opportunity at 10% off:X = $1,270 Discounted Bundle + ($2,382 L2 AH + FR List - $1,732 L2 AH List) * (1- 10%)X = $1,855
  • 8AH = Access Hoover’sFR = First ResearchL2 = HOL Prospector License
  • 4.2
  • Acquisition: Typically drive for first place position. May go in after auction with additional incentivesRetention: Strive to win the auction, but stay a close second place in an R&D account auction. as transition costs may be more than the price differenceAuction TrackingPricing analysts should compile all the details from the auction (inclusive of auction site terms, customer terms, auction results, quotes, important approvals / emails, etc.) at the end of the auctionTerms and ConditionsEnsure that Legal reviews customer Terms and Conditions of AuctionBe careful of discount off list assurance requirements in Terms and Conditions. May require that you maintain discount of initial aggressive fixed price over the term of the agreement.
  • Ritesh Sheth Pricing Top Right Quadrant 102810

    1. 1. The Top Right Quadrant: The Strategic and Tactical Answer to Profitable Pricing October 28, 2010 Ritesh Sheth, Director Pricing Strategy
    2. 2. PPS Conference Confidential 2 Executive Summary This presentation provides an opportunity to create and add value to an organization’s existing pricing strategy. There are two major categories for work around Pricing: • Marketing Strategy • Finance Operations Within the Strategy umbrella lies a variety of value-adding pricing related activities including: Operations for Pricing includes: Over time, these pricing activities will help an organization grow revenue and increase profitability. Metrics Forecasting Trending Competitives List Pricing Market / Mix Modeling Product Launch Cost Package Deal Pricing Deal Review Desk Account and Segment P&Ls Large Deals Sales Training Controllership
    3. 3. PPS Conference Confidential 3 Marketing Strategy competencies include a host of value-add activities and deliverables to provide discipline around Pricing – Set Pricing Strategy – Weekly Metrics  Product Scorecards  Attainment vs. Forecast – Forecasting by Product  Revenue  Units  Margin – Trending  List Margin (LM%)  Product Margin (PM%)  Discounting (Disc %) – Ad-hoc Analyses – Competitive Analysis  WAPP (Weighted Average Price Position)  MCPP (Minimum Configuration Price Point)  SAPP (Starting At Price Point) – Master Price List  List price and Cost by SKU / Product Code  Pricing Roadmap – Attach Rates Consolidation – By product family – Modeling – Product Launches – New Service Requirements Doc – Timelines – Pricing Strategy Presentations and Training – Cost Package Integration & Analysis
    4. 4. PPS Conference Confidential 4 Pricing Related Finance Operations competencies provide an ongoing view of the business revenue / profitability and necessary communications / controls to ensure growth and profitability – Set Deal Pricing Strategy  Discount Authority Matrix – Deal Review Desk  Deal Structuring  Approvals (Vendavo)  Deal P&L Tool  Upsell Tool – Account P&Ls – P&L for the Business  By Segment  Aligned with Sales Org – Large Deals Analysis  Disc % Trending  Profitability Analysis – Sales Training  Pricing Methodologies  Upsell Strategies – Controllership  Finance Alignment on Quotas / Compensation  Controls – Risk Management
    5. 5. PPS Conference Confidential 5 Here is a proposed timeframe for implementing both the strategic and operational pricing competencies within Hoover’s 3 Months 6 Months 1st Year 2nd Year 3rd Year StrategyOperations Cost Package Master Price List Competitive Analysis Weekly Metrics Attach Rate Analysis Modeling Forecasting Product Launches Trending Ad-hoc Analysis Discount Authority Matrix Deal Pricing Sales Training P&Ls Large Deals Analysis Controllership
    6. 6. PPS Conference Confidential 6 Pricing Strategy Margin % WAPP Margin $ WAPP = Weighted Average Price Position Richness of Config IncreasingWAPP IncreasingMargin$
    7. 7. PPS Conference Confidential 7 Dell Confidential For Internal Use Only Pricing Formulas Price = LP * ( 1 - DR%) LM% = 1 – C / LP PM% = 1 – C / P C = P * (1 – PM%) P = C / (1-PM%) Formula for solving for upsells: NP = BP + (LPr – LPb) * (1 – DR%) Legend: LP = List Price DR% = Discount Rate % LM% = List Margin % C = Cost P = Price PM% = Product Margin % NP = New Price BP = Base Price LPr = List Price Rich Config LPb = List Price Base Config
    8. 8. PPS Conference Confidential 8 The goal here is to help drive the sales team to upsell and achieve sales within the top right quadrant, where discounting is higher, but so is absolute margin $, and where we are most competitive WAPP Level of Offering List / Product Margin $ Min Avg Rich 1.0 1.5 2.0 100% 60% 30% WAPP - Weighted Average Price Position: Disc % Margin $ Competitor Offering w/in product line weighted by Hoover's Attach Hoover's Weighted List
    9. 9. PPS Conference Confidential 9 WAPP Level of Offering List / Product Margin $ Min Avg Rich 1.0 1.5 2.0 100% 60% 30% Disc % Margin $ Here’s a pricing strategy example applied showing an upsell from the base price to the updated Price and a further upsell to achieve even greater profitability – assumes guidance in profitably lower discounting WAPP - Weighted Average Price Position UP = BP + (LPu – LPo) * (1 – DR%) Upsell Opportunity Updated Price (UP) Base Price (BP)
    10. 10. PPS Conference Confidential 10 Here’s the math to apply for the example presented in the previous slide – below shows the math behind the upsells  X = $1,000 Current Discounted L2 License + ($1,732 L2 + AH Add- on List - $1432 L2 List) * (1 – 10%)  X = $1,270 L2 + AH Add-on Discounted Bundle  FR Add-on: $650  Apply $650 FR Add-on upsell Opportunity at 10% off:  X = $1,270 Discounted Bundle + ($2,382 L2 AH + FR List - $1,732 L2 AH List) * (1- 10%)  X = $1,855
    11. 11. PPS Conference Confidential 11 Business Case Template • Customer: • Business Case / Project: • Acquisition / Retention: • Quantity: • Total Deal Size: • Timeframe: • Location: • Justification for pricing below list / book value: • Leasing: • Any additional discounting / product credits / rebates: • Margin Recovery Strategy:
    12. 12. PPS Conference Confidential 12 P&L Objectives and Impact  Revenue Adjustments and Concessions – These are essentially give backs to customers for a variety of reasons.  Product issues  Customer experience issues  Competition – It is critically important to understand the direct negative impact this can have on the P&L
    13. 13. PPS Conference Confidential 13 Negotiating Techniques (BATNA)  Best Alternative To a Negotiated Agreement (BATNA)  Strive to provide alternatives vs. “no”  “How” you communicate is just as important as “What”  Transparency to financials via cost files, P&Ls, product knowledge  Triangulate financials via: – Segment / Regional discount rates – Historical P&L – Regional P&L – Discount rates by product – Win / Loss Reporting
    14. 14. PPS Conference Confidential 14 Top Ten Questions from Management  If negative margin: What’s the strategy to make money in this account?  Allow enough time for approvals, per an approval matrix, schedule them  Relay what the customer has told us in price terms, not margin  Know how this deal compares to an existing contract  Other Suppliers / OEM components: What is our value add  Know competitive landscape  How many rounds do we expect, or is this a Best and Final Offer  Leverage any strategic funds: marketing / other supplier rebates  Have the correct product offering / bundle  Make sure the pricing manager is well aware of any deal that ends up in front of the CEO / President
    15. 15. PPS Conference Confidential 15 Auction Pricing Strategies Purpose: Participate in competitive online bidding Goal: Identify strategies to successfully manage auctions Mechanics  Competitors bid down price to the customer  Pricing manager will develop a P&L and secure appropriate pricing approvals for a pricing floor prior to the auction  Lowest price in auction does not guarantee auction award Determining Price/Strategy Acquisition: Typically drive for first place position. May go in after auction with additional incentives Retention: Strive to win the auction, but stay a close second place in an R&D account auction. as transition costs may be more than the price difference Auction Tracking Pricing should compile details from the auction Legal review of customer’s Terms and Conditions of Auction Careful consideration of discount assurance requirements May require that you maintain discount of initial aggressive fixed price
    16. 16. PPS Conference Confidential 16 Competitive Intelligence  Key sources of marketing data – Sales makers – Customer visits (Pricing should make these quarterly visits) – Strategy, Brand Management, Product, and Procurement – Competitive Intelligence Team – Industry 3rd Party Research
    17. 17. PPS Conference Confidential 17 Pricing for Product Life Cycles  Product Development typically targets a specific timeframe / life cycle for key Lines of Businesses  Why is this important? – Understanding refresh cycles for upsells and RFPs (Request For Proposals) – Qualifying RFPs – Communicating stability
    18. 18. PPS Conference Confidential 18 Pricing Techniques – Fixed Price  Fixed price – is a negotiated price for a specified product offering for a set period of time – Should be negotiated on a “minimal offering” – Customer should not have the option to downgrade from standard – Fixed price contracts usually take into account “switching costs” and tend to be extremely aggressive for the first year
    19. 19. PPS Conference Confidential 19 Price Assurance  Price Assurance is intended to give customers the confidence that a supplier will always give them the best price and that they will share in any cost declines that usually occur in some industries – IDC – Use 3rd party vendor to establish an industry list price for a specific configuration and apply negotiated discount % to that list price – Quarterly price reductions – negotiate set quarterly reductions for the life of the contract – Cost Plus – agree to a cost plus percentage – Cost Benchmark – agree on a 3rd party to establish a cost benchmark and apply a negotiated mark up to that
    20. 20. PPS Conference Confidential 20 Comparing discount percentage off of list across potential partners is not an apples to apples comparison. The solution is to create a level playing field. How? Leverage an independent third party index to benchmark (discount) off. Utilize 3rd Party (Average of top vendors) How does this work? 1. Supplier submits the specified offering to 3rd Party 2. 3rd Party “feature adjusts” the vendors specified offering to establish an “apples-to-apples” book / list price 3. 3rd Party creates an average list price of the vendors to benchmark from 3rd Party Index Benchmarking
    21. 21. PPS Conference Confidential 21 Benefit to our Customers: 1. Easy to Evaluate 2. Assured good pricing for long term deals 3. Can focus on evaluating other areas of bids besides pricing 4. Eliminates Fear, Uncertainty and Doubt Internal Benefits: 1. Level Playing Field 2. If low price leadership, competitors don’t want this 3rd Party Indexing Benefits
    22. 22. PPS Conference Confidential 22 Last Attended Pricing Conference Agenda  10/24 – Day 1 Workshop: The Keys to Unlocking Your Organization’s Potential  10/25 – Dr. Reed Holden’s Pricing With Confidence – author of Strategy and Tactics of Pricing (KISS) – Herman Simon of Simon Kutcher & Partners – co-author of Manage for Profit, not for Market Share – great Porsche example – Rafi Mohammed – Culture of Profit – Andrew Rojeski – Pricing Practitioner ~ Pricing Capability Development: Driving a Commitment to Success – Julie Eastman – How to Standardize Your Pricing Exceptions – Richard Lancioni, Temple University Professor  10/26 – Bringing Science to the Art of Pricing (Waterfall Method) – Chris Delfanzo – Commoditization: Taking a Leadership Role in Reversing the Trend – Laura Preslan – Pricing Theory – Tom Jacobson - Pricing and Project Optimization (Accenture)
    23. 23. PPS Conference Confidential 23 Last Attended Pricing Conference Best Practices – Pricing Org World Class Pricing Process Maturity Levels 1. The Firefighter (Baseline Process is Ineffective) 2. The Policeman – Gaining Control of Pricing (Internal Process in Place) 3. The Partner – Developing Pricing Strategy (Value Processes in Place) 4. The Artist – Optimizing Pricing (Optimization Process in Place) 5. The Master – Achieving World Class (Excellence in Execution)
    24. 24. PPS Conference Confidential 24 Pricing Conference Best Practices – Impact of Move Revenue 100 99 COGS 60 60 SG&A 32 32 NI 8 7 = (7 - 8) / 8 12.5% A 1% change in price can have a 12.5% reduction in profitability 1% increase in price results in 12% increase in bottom line” - McKinsey & Co
    25. 25. PPS Conference Confidential 25 Pricing Conference Best Practices – EVE Economic Value Estimation Positive (+) Differentiated Value Negative (-) Differentiated Value Total Economic Value Price parity to competition $1,500 $1,000
    26. 26. PPS Conference Confidential 26 Contact Info Ritesh M. Sheth Director, Pricing Strategy Hoover’s, a Dun and Bradstreet Co. Email: rsheth@hoovers.com Office: 512.380.4879 LinkedIn: www.linkedin.com/in/thisisritesh

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