Deloitte vendavo sept 2010 - outcome based approach


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Vendavo Pricing Seminar Düsseldorf september 2010
Presentation by Theo Slaats, co-leader Deloitte EMEA Pricing and Profitability Management Center of Excellence

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Deloitte vendavo sept 2010 - outcome based approach

  1. 1. Defining Outcome-Based Success Criteriafor your Pricing InitiativePresentation by Theo Slaats – Deloitte © 2010 Deloitte Touche Tohmatsu
  2. 2. An Outcome Based Approach defines the future state as a result of animprovement initiative to determine success Shareholder Value Revenue Growth Operating Margin Asset Efficiency Expectations (after taxes) Selling, Cost of Goods Property, Plant Price General & Receivables Company External Volume Realization Sold Income Taxes & Equipment Inventory Administrative (COGS) & Payables Strengths Factors (SG&A) (PP&E) Common Pricing Challenges 1% Improvement Impact on Operating Profit  Downward pressures on prices are decreasing margins Price 12,3%  Wrong pricing due to lack of pricing and margin information  Profit leaking away because sales forces making price Variable 6,7% Cost exceptions on a regular basis due to lack of empowerment and enforcement Unit 3,6%  Profit not maximized because prices are not set at a level Volume granular enough to capture the maximum profit  Under- or overpricing due to inability to predict customer Fixed Cost 2,6% response to price changes Source: Compustat, Deloitte Analysis  Accelerated price erosion due to lack of visibility into historical Note: Impact estimate is based on the average Fortune 1000 company pricing of comparable deals2 © 2010 Deloitte Touche Tohmatsu
  3. 3. Pricing and Profitability Management: Drivers, Benefits and OutcomesTypical Qualitative Benefits and Outcomes• Ability to determine profit-maximizing prices for products and/or services• Identify causes of margin leakage by analyzing historical sales data at the transaction level• Design more efficient and effective pricing policies and processes that govern profitable decision making• Design and deploy pricing analytics, optimization and execution tools• Design organizations including roles, responsibilities, reporting relationships, and compensation schemes to align with profitability goalsTypical Quantitative Benefits and Outcomes• 1-3% of addressable revenue to the bottom line in the first 6-12 months – Typical increase in gross margin of 10-15% – Typical ROI of 200-350% in the first 12 months• Improved predictability of profit and volume• Improved decision making through better visibility to pricing and margin information © 2010 Deloitte Touche Tohmatsu
  4. 4. First, there are six core competencies that must be in place to positionpricing as a sustainable, competitive advantage © 2010 Deloitte Touche Tohmatsu
  5. 5. Pricing Strategy provides a framework to support business objectives byunderstanding and capturing the value of an offering relative to competitivealternatives and customer demands Pricing Strategy Market and Customer and Customer and Price positioning Multi-channel competitive product value product and pricing price management analysis analysis segmentation structure Organizations with World-Class Pricing Strategy Capabilities:  Define a pricing strategy that is consistent with overall business objectives  Display a consistent understanding of pricing strategy at all layers of the organization  Use customer value as the primary driver of pricing decisions and transactional behavior  Establish competitive differentiations in the market  Link pricing strategy with product portfolio management  Develop integrated pricing strategies for multi-channel price management © 2010 Deloitte Touche Tohmatsu
  6. 6. Advanced Analytics & Price Setting: Determining profit-maximizing prices andstrategies for products and/or services through advanced data and modelingtechniques Advanced Analytics & Price Setting Data mining and Deep-dive Optimization- Test and control Transactional Elasticity and database advanced based price design and results pricing analytics demand modeling development analytics setting monitoring Organizations with World-Class Advanced Analytics & Price Setting Competencies:  Routinely conduct detailed pricing & profitability analytics on historical data to understand performance and its drivers at the transaction level  Rely on advanced statistical and mathematical techniques to generate business insights and design profit-maximizing pricing, promotional and sales strategies  Have pricing structures and levels that are consistent with broader business goals and constraints  Incorporate an understanding of variations in both underlying cost structures and customers’ “willingness to pay” across geographies, products, distribution channels and customer segments  Predict the impact of price changes on business volume and benchmark actual performance relative to those predictions  Use predictive modeling to improve profitability by focusing on key profit levers such as pricing, customer retention, collections effectiveness, etc. © 2010 Deloitte Touche Tohmatsu
  7. 7. Price Execution: Effectively implement defined policies and processes thatgovern profitable decision making on a daily operational level Price Execution Monitor Design and Determine price Develop sales Measure and competition and communicate Manage price setting guidelines deals and report price market pricing programs exceptions and structures contracts performance environment and promotions End-to-End Pricing Process Framework Organizations with World-Class Price Execution Capabilities:  Achieve superior financial performance, relative to industry and competitors, that is also sustainable  Quickly and accurately communicate pricing information to the field, enabling the sales force to make profitable deals  Align the entire organization on profitability-based decisions  Achieve high compliance to profitability guidelines in deal negotiations  Efficiently communicate and distribute prices and manage promotions  Manage price exceptions in a timely and effective manner © 2010 Deloitte Touche Tohmatsu
  8. 8. Organizational Alignment and GovernanceEffectively manage the people and cultural dimensions of an organizationso that it can sustain pricing excellence Organizational Alignment and Governance Organization Change Sales Leadership Performance structure and management effectiveness alignment management governance and adoption Cross-Country Cultural Alignment Organizations with World-Class Organizational Alignment and Governance Capabilities:  Align incentives and performance metrics with pricing strategy  Engage leadership to drive pricing excellence and cultural changes  Clearly define areas of responsibility and accountability for all aspects of pricing  Focus on processes for continued improvement  Define career paths for people involved in pricing processes, improving the ability to retain high- performing talent  Focus on creating buy-in and ownership for change which will accelerate full optimization of pricing changes  Align the vision of the pricing organization with the company’s culture © 2010 Deloitte Touche Tohmatsu
  9. 9. Design and deploy pricing analytics, optimization and execution tools toenable effective pricing decisions and to enhance quality and consistencyof pricing processes Pricing Technology & Data Management Business System Software Commercial Detailed functional Data review and requirements integration configuration and software selection specification preparation definition design deployment Organizations with World-Class Pricing Technology & Data Management Competencies:  Leverage IP/capabilities of commercially available Pricing software  Develop robust data management and governance policies including agreed to and consistent cost allocation models  Enable decision making as close to the customer as possible, but enforce limits  Maintain high rates of efficiency and accuracy in pricing administration  Become agile in responding to changing market conditions or business strategy  Track, manage and regularly report pricing and margin performance buy customer, segment, geography and product/service © 2010 Deloitte Touche Tohmatsu
  10. 10. Tax & Regulatory Effectiveness: Proactively manage tax, regulatorycompliance and governance issues related to pricing decisions Tax & Regulatory Effectiveness Effective Tax Rate (ETR) Transactional Tax Tax Benefit Regime Regulatory & Governance Strategic Analysis Leakage Point Analysis Quantitative Analysis ComplianceOrganizations with World-Class Tax and Regulatory Capabilities: Adhere to a “tax-aligned” philosophy in assessing all initiatives and opportunities, measuring results on after-tax metrics Achieve and maintain an Effective Tax Rate (ETR) which is a competitive advantage Seek to avoid systemic tax leakage arising from transactional taxes Leverage detailed pricing data to enhance analyses and calculations supporting tax credits, deductions and incentives Optimize the enterprise’s ability to efficiently and effectively operate within the applicable regulatory environment by instituting “individual-level” actionable processes, monitoring compliance, incentivizing adherence, and facilitating rapid remediation © 2010 Deloitte Touche Tohmatsu
  11. 11. Establishing success criteria is essential…why? Bolster the Business Case Scope Growing Pains The Lost Deal “Mission Accomplished” © 2010 Deloitte Touche Tohmatsu
  12. 12. Criteria are defined through a straightforward gap assessment 2. Determine where your organization should be 1. 4. Understand the Build your Pricing capabilities Landscape (Start your journey) 3. Assess where your organization stands today Phase Timing Estimate Advanced Conduct Analytics 1 Month 1 Month 1 Month Transactional Profitability Assessment 1 Month Develop Strategy 1 Month 1 Month Design Supporting Infrastructure Implementation of TPA Opportunities (Quick Hits) 1 Month 1 Month 1 Month 1 Month Implementation of TPA Opportunities (Longer Term) 1 Month N Months Analytics & Demand Modelling & List Price & Discount Program & Incentive Price Setting Optimization Strategy Design Design Pricing and Prof itability Management Core Capabilities VOC and Conjoint Value Proposition Monitor Price Positioning Pricing Analysis Determination and Price Structure Strategy Market & Channel Customer & Market Competitive Profitability Segmentation Assessment Analysis Price As-Is Process & To-Be Process and KPI and Reporting Measure and Control Pricing Performance Execution Policy Analysis Policy Analysis Identification High ILLUSTRATIVE Preemptive Airline Organizational Assess Organizational Gaps and Needs Change Management Planning Training Industry Alignment & Leadership Alignment Stakeholder Governance Organizational Design and Profitability Management & Stakeholder Engagement & Performance Alignment Capabilities Development Assessment Alignment Pricing Requirements Gathering Technology & Data Identify Potential Select Implement Pricing and Profitability Technologies Management Solutions Solution Adaptive Data Complexity Effective Tax Rate Tax & (ETR) Analysis Regulatory Regulatory and Effectiveness Compliance Analysis Regulatory and Compliance Design Reactive Project Set up Project Execute Project Management Management Management Manufacturing Industry Primitive Car Dealers Low Pricing Low High Capabilities © 2010 Deloitte Touche Tohmatsu
  13. 13. The future starts with a vision – focused through the lens of the six box model 2. Determine where • Enable profitability-based decisions your organization • Enforce pricing policies should be• Clear instructions to the • Boundaries business with business plan • Incentives impact• Scenario planning• Transaction-based • Data collected to support other functions profitability analysis • Enterprise systems v. ad-• Price setting using hoc spreadsheets demand and elasticity modeling • Enhance quoting to support sourcing based on tax rules • SOX and FTC compliance © 2010 Deloitte Touche Tohmatsu
  14. 14. Price analysis, issues identification, and process mapping are thetools to establish your baseline 3. Assess where your organization stands today © 2010 Deloitte Touche Tohmatsu
  15. 15. Vendavo provides a platform to address pricing capabilities end-to-end. Deal Manager Price Execution Deal Manager Profit Analyzer, Organizational Alignment & (workflow, security, Price Manager Pricing Strategy Governance policies)(analytics, policies) Pricing Technology & Data Vendavo Profit Analyzer Advanced Analytics & Price Setting Management Platform Tax & Regulatory Effectiveness Deal Manager, Price Manager (policies and price calculations) © 2010 Deloitte Touche Tohmatsu
  16. 16. Example success criteria Competency Success Criteria Definition Target Status Strategy Business Plan Pricing directives are clear No unforeseen scenarios achievement to the operating units Business plan met +/- 5% Price Execution Business process Improves existing Price change approval/entry elapsed impact business processes time Fewer price exceptions / pricing claims Hours saved – 90 (120 hr baseline) Pricing Analytics Opportunities Analytics is providing new 3 actionable opportunities discovered discovered insights into the business per month Pricing Data quality The system provides Within 3% of P&L: Technology accurate data to support Revenues & Volume margin calculations – BU Freight to sign-off on accuracy Material costs Material master list Customer master list Pricing Application Quick response time, 98% availability; Technology Quality System is reliable and bug-free; Page refresh response time <10s (LAN connection) <20 functional defects post-go live Initiative Value for cost Can support and deliver +/- 10% of original budget; the benefits within the Anecdotal user valuation estimated costs Initiative Implementation Good vendor support; no Implementation <12 weeks Effort extraordinary problems setting up the software © 2010 Deloitte Touche Tohmatsu
  17. 17. Example – the CFO was very happy…but… Price Execution / Technical Strategy, Modeling Organizational Support Simulation Alignment © 2010 Deloitte Touche Tohmatsu
  18. 18. For more information please contact: Theo Slaats Deloitte Consulting BV Partner Laan van Kronenburg 2 CRM, Pricing, Cloud Computing 1183 AS Amstelveen The Netherlands Tel: +31 88 2886660 Mobile: +31 6 52672525 Member of Deloitte Touche Tohmatsu © 2010 Deloitte Touche Tohmatsu
  19. 19. Disclaimer:Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of memberfirms, each of which is a legally separate and independent entity. Please see a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. © 2010 Deloitte Touche Tohmatsu