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© 2014 Blue Canyon Partners, Inc. All rights reserved.
June 2014
Strategic Pricing Survey
Results and Insights
© 2014 Blue Canyon Partners, Inc. All rights reserved.
Table of Contents
2
 Introduction 3
 Is Pricing a Challenge? 4
 ...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
About a year ago, serious conversations began to
emerge across the ...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
Is Pricing a Challenge?
4
© 2014 Blue Canyon Partners, Inc. All rights reserved.
 Although more than 80% of
survey respondents indicated
that they ...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
Reasons for Not Having a Well-articulated,
Formal Pricing Strategy
...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
 While those who indicated that their business has a well-articula...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
 Those at the top, President/C-Suite, are the most confident that ...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
Reasons for Not Being Confident
in Pricing Practices
9
“Lack of und...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
 Those who indicated that their business has a well articulated pr...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
Reasons for Not Being Confident in Where
Pricing Decisions are Made...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What is Impacting Pricing and What
are Companies Doing About it?
12
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What is Impacting Pricing?
Market Trends
13
Customers’ Perception o...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What is Impacting Pricing?
Customer Trends
14
Greater Visibility an...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What are Companies Doing About it?
Actions to Address Pricing Trend...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
Specific Actions Being Taken
16
“Global Pricing Core Team in
proces...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What are Top Performers Doing?
17
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What are Top Performers Doing?
Defining Top Performers
18
 To iden...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What are Top Performers Doing?
Pricing Approach
19
 Top Performers...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What are Top Performers Doing?
Value-based Pricing Sidebar
20
 Int...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What are Top Performers Doing?
Pricing Decisions
21
 Examining whe...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What are Top Performers Doing?
Pricing Actions
22
 Top Performers ...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What are Top Performers Doing?
Pricing Tools
23
Frequently mentione...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What are Top Performers Doing?
Pricing Metrics
24
Frequently mentio...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
Summary and Recommendations
25
© 2014 Blue Canyon Partners, Inc. All rights reserved.
 Pricing continues to be a challenge
▫ Many companies lack a well-...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
 Best practices to become a “Top Performer”
▫ Segmentation
• Funda...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
Survey Methodology
28
© 2014 Blue Canyon Partners, Inc. All rights reserved.
 Blue Canyon and MAPI surveyed more than
1,000 CEOs, General Manag...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
What do we do?
 Advise on growth
challenges/problems
 Identify gr...
© 2014 Blue Canyon Partners, Inc. All rights reserved.
Axel J. Leichum, Principal
Axel J. Leichum
Current Responsibilities...
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Pricing Trends and Tools: How Companies Set Prices to Optimize Business Outcomes

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Blue Canyon Partners Principal Axel Leichum during a June 18 webinar to FORTUNE 1000 senior executives presented the findings from the Blue Canyon-MAPI strategic pricing survey. The survey included a host of questions about the trends and environmental factors that are impacting pricing, how businesses are addressing them, and what approaches are used to set pricing strategies. Axel provided vivid color around the survey’s findings and went deeper into how the findings correlate to what Blue Canyon has been observing in this area. The webinar concluded with best practices companies can implement in their own organizations.

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Pricing Trends and Tools: How Companies Set Prices to Optimize Business Outcomes

  1. 1. © 2014 Blue Canyon Partners, Inc. All rights reserved. June 2014 Strategic Pricing Survey Results and Insights
  2. 2. © 2014 Blue Canyon Partners, Inc. All rights reserved. Table of Contents 2  Introduction 3  Is Pricing a Challenge? 4  What is Impacting Pricing and What are Companies Doing About it? 12  What are Top Performers Doing? 17  Summary and Recommendations 25  Survey Methodology 28
  3. 3. © 2014 Blue Canyon Partners, Inc. All rights reserved. About a year ago, serious conversations began to emerge across the markets Blue Canyon serves regarding pricing strategy. Although the topic itself was not unusual or unfamiliar, the number of companies wanting to discuss the issue was increasing. Pricing strategy has become an important topic for the business unit leader and the C-level executive and across functions, such as business development and marketing. When the opportunity came to partner with MAPI on this topic, we were eager to learn what drives and impacts pricing strategy, how companies are addressing these factors, and how confident they are in their overall pricing approach. With more than 80% of respondents stating that they reassessed their pricing strategy 1 year ago or less confirms that pricing is top of mind. However, what does that say about the remaining 20% who have not recently reassessed their pricing strategy? Introduction 3 Less than 1 year ago, 62%1 year ago, 19% 2 years ago, 7% 3 years ago, 2% More than 3 years ago, 11% When was the last time your company reassessed its pricing strategy? N=103
  4. 4. © 2014 Blue Canyon Partners, Inc. All rights reserved. Is Pricing a Challenge? 4
  5. 5. © 2014 Blue Canyon Partners, Inc. All rights reserved.  Although more than 80% of survey respondents indicated that they reassessed their pricing strategy 1 year ago or less, nearly 60% specified that their business did not have a well-articulated, formal pricing strategy. Is Pricing a Challenge? Well-articulated, Formal Business Strategy 5 N=102
  6. 6. © 2014 Blue Canyon Partners, Inc. All rights reserved. Reasons for Not Having a Well-articulated, Formal Pricing Strategy 6 “A lot of randomness to our strategy—needs tightening up in a lot of areas” “Not consistent globally” “Mostly based in culture/institutional knowledge rather than well-articulated strategy” “Some of our operating units have a well-articulated pricing process, some do not. We are attempting to have all units take a value-based approach whenever possible” “Prices have been managed independently by business entities. Global customer behavior forcing changes towards coordinated, global price approach”
  7. 7. © 2014 Blue Canyon Partners, Inc. All rights reserved.  While those who indicated that their business has a well-articulated pricing strategy are more likely to be confident that they price effectively, only 24% are Very Confident  Of those who indicate they do not have a well-articulated pricing strategy a full 60% are Not Confident in how effectively they are pricing 7 Is Pricing a Challenge? Pricing Effectively to Maximize Profitability and Ability to Win N=42 N=60
  8. 8. © 2014 Blue Canyon Partners, Inc. All rights reserved.  Those at the top, President/C-Suite, are the most confident that they are pricing effectively, with over 70% at least Somewhat Confident  However the same level of confidence is not reflected at the Vice President level, where only 50% are at least Somewhat Confident and few are Very Confident 8 Is Pricing a Challenge? Pricing Effectively to Maximize Profitability and Ability to Win N=25 N=46 N=32
  9. 9. © 2014 Blue Canyon Partners, Inc. All rights reserved. Reasons for Not Being Confident in Pricing Practices 9 “Lack of understanding of value pricing” “Cost-plus not optimal” “Not convinced that the value proposition for the products we offer is fully assessed for each opportunity” “Decentralized nature of our pricing processes leaves a lot of opportunity for different behavior in different business units and geographies” “Since our general pricing strategy is cost-plus, we don’t know what we are leaving on the table” “Broad catalog and several channels, the system is too complex and unwieldy to effectively gauge”
  10. 10. © 2014 Blue Canyon Partners, Inc. All rights reserved.  Those who indicated that their business has a well articulated pricing strategy are more likely to be confident that where pricing decisions are being made is appropriate to drive success, with over 40% being Very Confident  Of those who indicate they do not have a well articulated pricing strategy only 15% are Very Confident that where pricing decisions are being made is appropriate to drive success 10 Is Pricing a Challenge? Determining Where Pricing Decisions Should be Made N=42 N=60
  11. 11. © 2014 Blue Canyon Partners, Inc. All rights reserved. Reasons for Not Being Confident in Where Pricing Decisions are Made 11 “There are times that decisions are made in silos or vacuums” “We are in the process of driving pricing decisions down to the local level” “We need to improve Marketing’s role in pricing decisions” “Lack of a repeatable, proven methodology” “Not enough market knowledge factored into pricing” “We are still building central guidelines that will allow for more local decisions within these parameters. Today there is not enough structure”
  12. 12. © 2014 Blue Canyon Partners, Inc. All rights reserved. What is Impacting Pricing and What are Companies Doing About it? 12
  13. 13. © 2014 Blue Canyon Partners, Inc. All rights reserved. What is Impacting Pricing? Market Trends 13 Customers’ Perception of Value and Underlying Market Factors are seen as the key drivers impacting pricing Other factors: Increased local/regional/global competition Commoditization New players in the value chain Channel mix N=102
  14. 14. © 2014 Blue Canyon Partners, Inc. All rights reserved. What is Impacting Pricing? Customer Trends 14 Greater Visibility and Smart Customers make pricing strategy and decisions even more important “Customers are demanding more price/cost transparency before making large investments.” “The channels we use that are growing heavily have more sophisticated sourcing organizations.” “Customers are more global and are starting to compare price levels in various regions of the world.” “The increasing presence of our products on the Internet makes our pricing more transparent every year.” N=102 N=102
  15. 15. © 2014 Blue Canyon Partners, Inc. All rights reserved. What are Companies Doing About it? Actions to Address Pricing Trends 15 To address pricing trends companies are focusing more on Process and Tools Over 50% of companies are undertaking multiple activities to address pricing trends N=103 N=103
  16. 16. © 2014 Blue Canyon Partners, Inc. All rights reserved. Specific Actions Being Taken 16 “Global Pricing Core Team in process” “Assessing rebates, freight, and other non-price factors in the value equation” “More discipline process and approval levels depending on deal size and margins” “Improved metrics and data structure to facilitate pricing analytics and performance management” “Moving quickly toward market segmentation and sub- segmentation so that we can truly focus on areas of distinct competitive advantage” “Better aligning metrics for pricing stakeholders. Make sure that metrics for sales folks involved in pricing go beyond revenue maximization”
  17. 17. © 2014 Blue Canyon Partners, Inc. All rights reserved. What are Top Performers Doing? 17
  18. 18. © 2014 Blue Canyon Partners, Inc. All rights reserved. What are Top Performers Doing? Defining Top Performers 18  To identify best practices, we compared responses of “Top Performers” and “Bottom Performers”  Top Performers are defined as those respondents who…  Have a well-articulated, formal pricing strategy  Are somewhat or very confident that they are pricing effectively  Are somewhat or very confident that where pricing decisions are made is appropriate  Bottom Performers are defined as those respondents who…  Do not have a well-articulated, formal pricing strategy  Are neutral or unconfident that they are pricing effectively  Are neutral or unconfident that where pricing decisions are made is appropriate N=103
  19. 19. © 2014 Blue Canyon Partners, Inc. All rights reserved. What are Top Performers Doing? Pricing Approach 19  Top Performers are much more likely to have a Value-based approach to pricing or a Combination approach that includes Value-based pricing, while Bottom Performers are more likely to have a Cost-plus based approach or a Combination that includes Cost-plus pricing How would you currently characterize your organization's primary pricing approach? More likely to indicate Combination, including Value- based pricing More likely to indicate Combination, including Cost-plus pricing N=36 N=24
  20. 20. © 2014 Blue Canyon Partners, Inc. All rights reserved. What are Top Performers Doing? Value-based Pricing Sidebar 20  Interestingly, respondents who do not primarily use a Value-based pricing approach are almost just as likely as those who do primarily use a Value-based approach (or a combination, including Value-based pricing) to specify that 1)Their customers understand the value of their offering and 2) Are willing to pay for that value  Given this perspective on their customers, one would expect more respondents to have implemented Value-based pricing approaches. This is a strong indicator of the difficulty of implementing Value-based pricing and moving away from traditional Cost-plus or Market-based pricing approaches N=71 N=31 N=71 N=31
  21. 21. © 2014 Blue Canyon Partners, Inc. All rights reserved. What are Top Performers Doing? Pricing Decisions 21  Examining where and how pricing decisions are made did not reveal any significant differences in how many functions/groups are involved in pricing decisions or where decisions are made, however, Top Performers are more likely to have a Dedicated Pricing Function and rely less on General Mangers for Pricing Decisions than Bottom Performers.  Confidence in pricing is likely more driven by other factors such as process, tools, and capabilities N=24 N=36 N=24 N=36 N=24 N=36
  22. 22. © 2014 Blue Canyon Partners, Inc. All rights reserved. What are Top Performers Doing? Pricing Actions 22  Top Performers respond to market and pricing environment factors by focusing on Developing/Improving Pricing Tools and Processes rather than Restructuring their Organization or changing Pricing Authority N=24 N=36
  23. 23. © 2014 Blue Canyon Partners, Inc. All rights reserved. What are Top Performers Doing? Pricing Tools 23 Frequently mentioned tools utilized by Top Performers include…  Strategic Pricing Frameworks  Pricing Matrixes  Pricing Analytics  Competitor Pricing Databases/Analysis  Primary Research/ Voice of Customer “Various Strategic structures: Voice of the Customers (VOCs); pricing matrix” “Pricing analytics - pattern assessment, scatter plots and statistical analysis. Strategic pricing frameworks (defining value creation and dimensions of differentiation - then testing pricing strategy, price points, and actual prices achieved)” “Competitive price analysis, internal assessment of value proposition strength and consequent premium potential”
  24. 24. © 2014 Blue Canyon Partners, Inc. All rights reserved. What are Top Performers Doing? Pricing Metrics 24 Frequently mentioned metrics utilized by Top Performers include…  Price Impact on Revenue/Profitability  Win/Loss Ratio vs. Price Levels  Market Share Change  Price Realization/Price Leakage  Customer Value Indicators “Win/loss, price development year over year, % of business asking for ‘special’ prices” “Price Realization and Price Quality Indicators. Flexible and dynamic measurability at any level of customer, product, and geography” “Semi-annual customer survey that addresses the overall value of our business relationship”
  25. 25. © 2014 Blue Canyon Partners, Inc. All rights reserved. Summary and Recommendations 25
  26. 26. © 2014 Blue Canyon Partners, Inc. All rights reserved.  Pricing continues to be a challenge ▫ Many companies lack a well-articulated pricing strategy ▫ Even among those that have a strategy, many are still not confident that they are pricing effectively  Market and customer trends will put greater emphasis on pricing going forward ▫ Changes in customer’s perception of value and underlying market factors combined with greater pricing visibility and smart customers are making pricing decisions even more important ▫ Companies are responding by developing/improving pricing processes and tools  Top Performers can provide valuable guidance ▫ The location of pricing decisions and functions involved are not as important as having the right processes, tools, and capabilities ▫ Implementing value-based pricing and the right pricing tools and processes are linked to increased confidence in pricing effectiveness ▫ Strategic pricing frameworks, pricing analytics, competitive pricing data, and voice of customer are key tools for success ▫ Focus on metrics that clearly indicate pricing’s impact on the overall business – Price Impact on Revenue/Profitability, Win/Loss Ratio vs. Price Levels, and Price Realization/Leakage Summary 26
  27. 27. © 2014 Blue Canyon Partners, Inc. All rights reserved.  Best practices to become a “Top Performer” ▫ Segmentation • Fundamental to developing pricing strategy. Need to know when, where, and to who pricing should be different and why ▫ Framework before programs • First, establish your overall pricing approach. The programs to execute on the approach will follow ▫ Tools and processes • To consistently and effectively implement pricing approach, especially in large, global organizations ▫ Put pricing in its proper place • Pricing needs to receive the right level of attention. Dedicated function or position at senior level with clear decision rights is best practice ▫ Measure, measure, measure • Clear metrics and processes for monitoring performance, with systems and reporting purpose designed to support strategic and tactical pricing decisions Recommendations 27
  28. 28. © 2014 Blue Canyon Partners, Inc. All rights reserved. Survey Methodology 28
  29. 29. © 2014 Blue Canyon Partners, Inc. All rights reserved.  Blue Canyon and MAPI surveyed more than 1,000 CEOs, General Managers, Division Leaders, and Heads of Marketing and Strategic Planning  103 valid responses were collected from 66 companies from a broad cross section of industries  Over 2/3 of the survey respondents were executive level who own a P&L and are involved in making pricing decisions or setting pricing guidelines within their organizations  Nearly half of the companies have a dedicated pricing group  Nearly 60 percent indicated that they use a combination of pricing approaches, including market-based, value-based, and cost-plus Survey Methodology 29 0 10 20 30 40 50 60 70 Leading a business unit and/or region Leading multiple businesses Owning a P&L Making pricing decisions Setting the pricing guidelines within my organization None of the above Please indicate if you are personally responsible for any of the following (check all that apply) 48 61 70 83 85 25 0 10 20 30 40 50 60 70 80 90 Which function/groups participates in pricing decisions in your business (check all that apply)
  30. 30. © 2014 Blue Canyon Partners, Inc. All rights reserved. What do we do?  Advise on growth challenges/problems  Identify growth opportunities  Develop new business models  Evaluate fact-based strategic options  Recommend alternative approaches  Set detailed action plans What makes us different?  Foster win-win outcomes along the customer chain  Centered on understanding complex, external environments [markets, customers, channels, competitors]  “Outside-in” market-driven strategies  Leverage proven methodologies to develop cutting-edge answers  Journey with clients to make decisions and to take action What is our experience?  Industries  Agriculture  Vehicles  Construction  Distribution/Wholesaling  Chemicals  Industrial Equipment  Oil & Gas  Healthcare  IT & Telecommunication  Tools & Equipment  Utilities  And more…. Who are we?  Management consulting firm  Serve Global 1000 business-to-business companies  Team of seasoned consultants  U.S. & global capabilities with offices in Chicago and Beijing About Blue Canyon Partners 30
  31. 31. © 2014 Blue Canyon Partners, Inc. All rights reserved. Axel J. Leichum, Principal Axel J. Leichum Current Responsibilities Axel Leichum leads numerous business-to-business focused strategy projects that help Blue Canyon’s clients improve their understanding of customer needs, identify and prioritize growth opportunities, effectively segment and target markets, and enhance their major customer relationships. PRINCIPAL T (847) 967-0253 E ajl@bluecanyonpartners.com Experience With more than 12 years as a management consultant, Axel brings extensive experience in conducting primary and secondary research and performing economic analysis, combined with the ability to translate information into insight and actionable strategies for clients. Axel’s client engagements have spanned a wide variety of industries and geographies. His work includes:  Developing a pricing strategy for a global supplier of healthcare equipment  Defining a go-to-market strategy for an IT infrastructure management software and hardware provider  Developing a global growth strategy for a supplier of equipment to the telecommunications industry  Defining the market opportunity for a new technology to be introduced into the utility industry Prior to joining Blue Canyon, Axel served as a consultant with Booz  Allen & Hamilton’s management consulting practice (now known as Strategy&) working primarily with clients in the financial services and consumer products industries. Education and Affiliations Axel has a Bachelor of Arts in Economics from Northwestern University with departmental honors. Thought Leadership Axel has written and contributed to a number of articles and white papers on topics such as adjacencies and pricing strategies. His two white papers on adjacencies --Discovering Your Next Growth Opportunity: Adjacent Markets and Adjacent Markets: Choose Your Battles Wisely--explore how to identify and prioritize adjacent market opportunities. 31

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