Business 2 Business 2 Consumer Price and Value Management Through Tiered Channels Presented by: Tom Monheim Brian Sharp
Today’s Agenda <ul><li>Welcome & Introductions </li></ul><ul><li>Pricing Transformation at Trane  </li></ul><ul><li>Managi...
Introductions <ul><li>Who is Trane?  And who is Kalypso? </li></ul><ul><li>The US leader in air  conditioning, heating and...
What’s our business model?  B-to-B or B-to-C?  <ul><li>Leading consumer brands, with a tiered distribution model </li></ul...
Today’s Agenda <ul><li>Welcome & Introductions </li></ul><ul><li>Pricing Transformation at Trane   </li></ul><ul><li>Manag...
Pricing transformation begins… <ul><li>New pricing leadership brought in ~3.5 years ago </li></ul><ul><ul><li>Challenges: ...
Priorities must be established… <ul><li>Six primary functional areas of pricing defined </li></ul><ul><li>Priorities devel...
Phase One in Action Build price waterfall Prioritize buckets; data rarely cooperates; avoid peanut butter spreading  Price...
Phase Two in Focus <ul><li>Core systems replacement, along with process redesign around discounting </li></ul><ul><li>Valu...
Today’s Agenda <ul><li>Welcome & Introductions </li></ul><ul><li>Pricing Transformation at Trane  </li></ul><ul><li>Managi...
What’s the value proposition? Value Drivers Heard at the water cooler: “ We have trouble moving our value proposition down...
How do we determine value and set price? Two Schools of Thought “ Value is Relative” - - Perceived Value “ Value is Quanti...
Perceived Value The  Value Map  shows the position of each competitor in terms of the  overall cost versus the overall ben...
Measuring Perceptions – Example <ul><li>Consumers rated the importance of 53 potential HVAC attributes </li></ul><ul><li>A...
Measuring Economic Impact – Value Waterfall A  Value Waterfall  is used for estimating the economic value-in-use of soluti...
Today’s Agenda <ul><li>Welcome & Introductions </li></ul><ul><li>Pricing Transformation at Trane  </li></ul><ul><li>Managi...
Case #1:  New Material for Home Insulation <ul><li>54% of energy in the US is consumed by buildings (residential and comme...
One Offer.  Four Value Propositions. Calculated Total cost of ownership over an expanding time frame (2-5 years) Scope of ...
Value proposition to the homeowner is clear… <ul><li>“ install better insulation in your home and save 25-40% on your mont...
Value proposition for residential homebuilder is not clear… <ul><li>“ Build your homes with our insulation….and increase y...
Case #2:  Beyond Hot & Cold:  Ideal Home Environment <ul><li>Clean Air is a Big Deal </li></ul><ul><li>45% households with...
Value Drain Across the Tiered Channels HVAC OEM Distributor Dealer or Contractor Homeowner … Not as rosy for Integrated Cl...
Distribution channel creates a value drain… Value Sophistication HVAC OEMs Creating a range of solutions which address eme...
Value analysis drives a new set of actions… <ul><li>‘ Pressure test’ value propositions with each tier  in the channel </l...
Today’s Agenda <ul><li>Welcome & Introductions </li></ul><ul><li>Pricing Transformation at Trane  </li></ul><ul><li>Managi...
Key Take-Aways <ul><li>Pricing group must be involved in value management through the entire product lifecycle (concept to...
Contact Information Tom Monheim [email_address] 903.253.6607 Brian Sharp [email_address] 919.428.4495 Thank you for attend...
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Pps Presentation B2 B2 C Screen Versionv2

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Presentation made with good friend and colleague Tom Monheim of Trane/Ingersol Rand, &quot;B2B2C: Price &amp; Value Management Through Tiered Channels&quot;

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  • Pps Presentation B2 B2 C Screen Versionv2

    1. 1. Business 2 Business 2 Consumer Price and Value Management Through Tiered Channels Presented by: Tom Monheim Brian Sharp
    2. 2. Today’s Agenda <ul><li>Welcome & Introductions </li></ul><ul><li>Pricing Transformation at Trane </li></ul><ul><li>Managing Price and Value through Tiered Channels </li></ul><ul><li>Case Studies </li></ul><ul><li>Key Take-Aways </li></ul><ul><li>Q & A </li></ul>
    3. 3. Introductions <ul><li>Who is Trane? And who is Kalypso? </li></ul><ul><li>The US leader in air conditioning, heating and clean air systems </li></ul><ul><li>Premium positioned brands: </li></ul><ul><ul><li>Trane </li></ul></ul><ul><ul><li>American Standard </li></ul></ul><ul><li>Trane is the Quality & Reliability Leader and is #1 in brand awareness, consideration and loyalty </li></ul>A management consulting firm focused on helping clients deliver on the promise of innovation. Our unique perspective on growth and innovation informs our Pricing & Value Management Practice, driving increased profitability throughout the product lifecycle. <ul><li>The Kalypso Difference </li></ul><ul><li>Exclusive Focus </li></ul><ul><li>Comprehensive Capability </li></ul><ul><li>Integrated Approach </li></ul><ul><li>Informed Opinions </li></ul><ul><li>Sustained Results </li></ul>
    4. 4. What’s our business model? B-to-B or B-to-C? <ul><li>Leading consumer brands, with a tiered distribution model </li></ul><ul><ul><li>Two-stage distribution </li></ul></ul><ul><ul><li>Mix of company owned and independent distributors </li></ul></ul><ul><ul><li>No direct sales to homeowner </li></ul></ul><ul><ul><li>But homeowner is ‘king’ </li></ul></ul>HVAC OEM Distributor Dealer or Contractor Homeowner B-to-B-to-B….-to-Consumer
    5. 5. Today’s Agenda <ul><li>Welcome & Introductions </li></ul><ul><li>Pricing Transformation at Trane </li></ul><ul><li>Managing Price and Value through Tiered Channels </li></ul><ul><li>Case Studies </li></ul><ul><li>Key Take-Aways </li></ul><ul><li>Q & A </li></ul>
    6. 6. Pricing transformation begins… <ul><li>New pricing leadership brought in ~3.5 years ago </li></ul><ul><ul><li>Challenges: Aging systems, immature processes, lack of analytics, industry price disruption (13 SEER) </li></ul></ul>Process overhaul? Replace old pricing system? Market price studies? 13 SEER pricing? Competitive insights? New product pricing? Gaining or losing price? Are we quoting too often?
    7. 7. Priorities must be established… <ul><li>Six primary functional areas of pricing defined </li></ul><ul><li>Priorities developed within this framework </li></ul>List Price Management Discounting & Controls Competitive Intelligence Value Management Performance Analysis / Insights Core Systems <ul><li>Calibrate market prices (13 SEER) </li></ul><ul><li>Quoting guidelines and consistency </li></ul><ul><li>Upgrade analytics </li></ul><ul><li>Core processes not ready for systems replacement </li></ul>
    8. 8. Phase One in Action Build price waterfall Prioritize buckets; data rarely cooperates; avoid peanut butter spreading Price / Volume / Mix models Essential for measuring ‘pure price’ gains – no Pricer should be without Data Warehouse, Access, Excel integration (VBA) Great way to prototype decision support tools and build requirements for new core system Introduce Value Management concepts Always good to plant seeds, even if not ready to harvest yet Key Actions Important Lessons Field alignment on pricing strategy Especially important around major product transitions; can’t assume everyone ‘gets it’ Process definition for market price studies Important for setting and managing expectations, internally and externally Standardize quoting processes Improve distributors’ understanding of our decision guidelines; more efficient for all Price band analysis Wide ranges of sell prices has big implications on list price and discounting strategies
    9. 9. Phase Two in Focus <ul><li>Core systems replacement, along with process redesign around discounting </li></ul><ul><li>Value Management focus </li></ul><ul><ul><li>Value mapping, segmentation, early pricing input for NPDs, managing value among channel partners </li></ul></ul>List Price Management Discounting & Controls Competitive Intelligence Value Management Performance Analysis / Insights Core Systems Today’s Focus
    10. 10. Today’s Agenda <ul><li>Welcome & Introductions </li></ul><ul><li>Pricing Transformation at Trane </li></ul><ul><li>Managing Price and Value through Tiered Channels </li></ul><ul><li>Case Studies </li></ul><ul><li>Key Take-Aways </li></ul><ul><li>Q & A </li></ul>
    11. 11. What’s the value proposition? Value Drivers Heard at the water cooler: “ We have trouble moving our value proposition down the value chain” HVAC OEM (TRANE) Distributor Dealer or Contractor Homeowner Calculated Fair trade on activities performed by distributor in return for appropriate margin and inventory turnover Calculated Reliability, ease of servicing, & installation, training/support from distributor, fast availability of products Perceived Reliability, efficiency, ease of use, comfort, product and air quality, value
    12. 12. How do we determine value and set price? Two Schools of Thought “ Value is Relative” - - Perceived Value “ Value is Quantifiable” - - Calculated Value Value maps Price vs. performance Relative market position Waterfall charts Economic Value Analysis Return on investment Decision to use one or both depending on the unique situation Alignment of Price and Value Tools
    13. 13. Perceived Value The Value Map shows the position of each competitor in terms of the overall cost versus the overall benefit.  Higher Cost Relative Price Lower Cost Inferior Superior Relative Perceived Value Worse Value Fair Value Line Better Value Economy Average Premium
    14. 14. Measuring Perceptions – Example <ul><li>Consumers rated the importance of 53 potential HVAC attributes </li></ul><ul><li>Attributes were ranked based on the number of “Extremely” or “Very Important” responses received </li></ul>Tier 1 Tier 3 Tier 4 Tier 5 Tier 2
    15. 15. Measuring Economic Impact – Value Waterfall A Value Waterfall is used for estimating the economic value-in-use of solutions.  This tool is most effective when your business has a clear economic advantage over a specific competitor or when you are weighing purchase decision (e.g. as a consumer) $ Variance Cost/Profit vs. Current Solution Current Solution Break Even Savings
    16. 16. Today’s Agenda <ul><li>Welcome & Introductions </li></ul><ul><li>Pricing Transformation at Trane </li></ul><ul><li>Managing Price and Value through Tiered Channels </li></ul><ul><li>Case Studies </li></ul><ul><li>Key Take-Aways </li></ul><ul><li>Q & A </li></ul>
    17. 17. Case #1: New Material for Home Insulation <ul><li>54% of energy in the US is consumed by buildings (residential and commercial) and their construction </li></ul><ul><li>Department of Energy reports that over 40% of the cost of heating and cooling is lost through uncontrolled leakage through the building envelope </li></ul><ul><li>Sharp spikes in energy prices in 2008 increased homeowner awareness related to insulation solutions </li></ul><ul><li>Energy-efficient, or “green” construction is the main trend in the building and construction sector </li></ul>A new technology is available which reduces energy leakage through the building envelope while maintaining or increasing the R value of the insulation in the wall and roof space in conventional homes, relative to traditional fiberglass insulation
    18. 18. One Offer. Four Value Propositions. Calculated Total cost of ownership over an expanding time frame (2-5 years) Scope of enterprise Basic Materials Manufacturer Residential Insulation Manufacturer Insulation Installer Residential Home Builder Homeowner Calculated Fair trade on order fulfillment activity performed by distributor in return for appropriate margin and inventory turnover Calculated Application training and technical support augmented by cooperative marketing spend and effectiveness Calculated Return on investment for labor and material inputs during home construction process leading to maximum retail price capture Perceived Value : functional and emotional benefits of reliability “My home is ‘green” Value Drivers
    19. 19. Value proposition to the homeowner is clear… <ul><li>“ install better insulation in your home and save 25-40% on your monthly energy bill…” </li></ul>Variance Cost/Profit vs. Fiberglass Additional Installed cost of Insulation HVAC Sizing Elimination of Humidifier Present Value of Future Energy Savings Current Option: Fiberglass Insulation Break Even in x months
    20. 20. Value proposition for residential homebuilder is not clear… <ul><li>“ Build your homes with our insulation….and increase your cost/home?” </li></ul>Variance Cost/Profit vs. Fiberglass Raw Material & Installation Costs HVAC Sizing Elimination of Humidifier Extra Ventilation Construction Site Disruption Current Option: Fiberglass Insulation Break Even Price Markup on House Profit Problem: homebuilders don’t understand how to cover the costs of better insulation
    21. 21. Case #2: Beyond Hot & Cold: Ideal Home Environment <ul><li>Clean Air is a Big Deal </li></ul><ul><li>45% households with respiratory problems </li></ul><ul><li>20M with asthma </li></ul><ul><li>Indoor Air 5x worse than Outdoor Air (EPA study) </li></ul><ul><li>Consumers willing to pay for proven solution </li></ul><ul><li>Results </li></ul><ul><li>Tremendous positive consumer experience </li></ul><ul><li>From ~10% to >50% market share first year of launch </li></ul><ul><li>Grew entire clean air market by 42% </li></ul><ul><li>Drove high end system and accessory sales </li></ul><ul><li>Enhanced dealer profitability for those who “get it” </li></ul><ul><ul><li>80% / 20% rule </li></ul></ul><ul><ul><li>Channel still focused on ‘hot & cold’ </li></ul></ul><ul><li>Initial Launch </li></ul><ul><li>‘ Bolt-on’ air cleaner </li></ul><ul><li>Upgrade kits for older electronic air cleaners </li></ul><ul><li>$1400 MSRP </li></ul><ul><li>Significant marketing investment </li></ul>Room Air Purifier Typical HVAC System Electronic Air Cleaner Trane Clean Air Technology <ul><li>Trane/AmStd Solution </li></ul><ul><li>Exclusive, proprietary technology </li></ul><ul><li>99.98% efficient at 0.1 microns </li></ul><ul><li>Removes the flu virus! </li></ul><ul><li>Highest available Clean Air Delivery Rate (CADR) </li></ul>CADR CleanEffects tm
    22. 22. Value Drain Across the Tiered Channels HVAC OEM Distributor Dealer or Contractor Homeowner … Not as rosy for Integrated Clean Air Value Promise <ul><li>Extension of successful clean air launch </li></ul><ul><li>Premium price to dealer (vs ‘bolt-on’ solution) </li></ul><ul><li>Significant installation labor savings (time, $) </li></ul><ul><li>Compact design needed for some applications </li></ul><ul><li>Wants clean air </li></ul><ul><li>Willing to pay $1400+ for Trane CleanEffects performance </li></ul>Value Reality <ul><li>Extra SKUs drove extra carrying cost </li></ul><ul><li>Low % of dealers who “get it” </li></ul><ul><li>Didn’t adjust price to homeowner to reflect labor savings </li></ul><ul><li>Cost-plus mentality </li></ul><ul><li>Still wants/needs clean air </li></ul><ul><li>Opted for ‘bolt-on’ solution </li></ul>
    23. 23. Distribution channel creates a value drain… Value Sophistication HVAC OEMs Creating a range of solutions which address emerging homeowner needs related to energy management, air quality, and climate control HOMEOWNERS Growing awareness related to energy management, air quality, and total cost of ownership as it relates to household budget and operations Value Drain Value Created Needs CHANNEL Moving product through a mature, 2 tier structure across a highly fragmented mix of regional and privately held businesses Channel-to-market compromising value capture
    24. 24. Value analysis drives a new set of actions… <ul><li>‘ Pressure test’ value propositions with each tier in the channel </li></ul><ul><li>Look for conflicting benefits and points of departure </li></ul><ul><li>Evaluate go-to-market options – particularly relevant for non-core products </li></ul><ul><li>Segment existing channels and target opportunities </li></ul>
    25. 25. Today’s Agenda <ul><li>Welcome & Introductions </li></ul><ul><li>Pricing Transformation at Trane </li></ul><ul><li>Managing Price and Value through Tiered Channels </li></ul><ul><li>Case Studies </li></ul><ul><li>Key Take-Aways </li></ul><ul><li>Q & A </li></ul>
    26. 26. Key Take-Aways <ul><li>Pricing group must be involved in value management through the entire product lifecycle (concept to end of life) </li></ul><ul><li>Establish value stories and marketing plans for every channel touch point through end-user </li></ul><ul><li>Rigorously apply value science: either perceived or calculated value </li></ul>Value drives tactics!
    27. 27. Contact Information Tom Monheim [email_address] 903.253.6607 Brian Sharp [email_address] 919.428.4495 Thank you for attending today’s presentation!

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