Brand Preference Builds Pricing Power 11 6 11

2. Situation Tough business environment can squeeze profits P R O F  Sluggish demand I  Excess capacity T  Input cost volatility, inflation S Q  More customers applying U adversarial buying tactics E E Z E Copyright © 2011 Marketwerks, Inc. 2

3. Why Pricing Matters Pricing: The most powerful lever for earnings 1% Improvement Here Yields operating profit improvement of: Price 11% Variable costs 7% Volume 3.7% Fixed costs 2.7% Source: McKinsey study based on Global 1200 data 3

4. Root Causes of Problem Weak Brand Preference  low pricing power Weak Brand % C 45% U S T O M 30% E R S 15% 10% Won’t Inclined Neutral / Prefer Insistently Consider Against Open the Brand Loyal From Daring Caution: Copyright © 2011 Marketwerks, Inc. The Executive’s Guide to Pricing Improvement. 4

5. Root Causes of Problem Common reasons for low pricing power • Company hasn’t innovated / evolved product & service offering to address unmet or under-served customer needs and wants… offering is not meaningfully differentiated • Offering and price structure aren’t well-aligned with what customers value • Undifferentiated or poor customer Brand Experience Result:  Company has too many price-sensitive customers  Winning and losing transactions is overly dependent on price Copyright © 2011 Marketwerks, Inc. 5

7. Increase Buyers’ Willingness to Pay Strong Brand Preference  resist price squeeze Strong Brand % C U S 35% T 30% O M 25% E R 10% S Won’t Inclined Neutral / Prefer Insistently Consider Against Open the Brand Loyal Copyright © 2011 Marketwerks, Inc. 7

8. Recap • Price is a powerful lever • Tough times demand offsets to pricing pressures • Most companies have opportunity – Improve offering – Enhance customer’s Brand Experience – Communicate to build brand • Brand Preference  more power to resist price pressure Copyright © 2011 Marketwerks, Inc. 8

9. Compete more on Worth, less on priceSM Bob Sherlock President Marketwerks, Inc. 1900 E. Golf Rd. – Suite 950 Schaumburg, IL 60173-5034 847-382-6210, x. 802 www.marketwerks.com 9

Editor's Notes

The response to the tougher business environment at many companies has been to aggressively attack costs. Cost-cutting of course is a source of earnings protection and improvement, but higher pricing yields can help even more.The payoff from higher prices and near-price terms of sale can be impressive: 1% more price yields up to 11% increase in operating profit – a greater impact than the other actions typically taken to protect and improve earnings. This was based on a study of bigger companies, but as we’ll see later I have seen similar results in much smaller companies. (S&P Global 1200… energy, materials, industrials, consumer staples and discretionary, healthcare, financials, infotech, utilities)For example,
Thiscompany hasn’t built Brand Preference, so lacks pricing power. We see this happen for three reasons:The company hasn’t innovated or evolved its offering to meet unserved or underserved customer needs and wants. The offering is not meaningfully differentiated.Offering and price structure are not well-aligned with what customers value. The result? Leaving money on the table with some customers, losing desirable orders from others, and having margins compressed by “trying to sell a Chevy customer a Cadillac at a Chevy price.” The customer’s experience in doing business with the company isn’t so great. Because the company hasn’t built strong Brand Preference through the customer’s consideration, buying and usage experience, the company has too many price-sensitive customers. Winning and losing transactions is overly dependent on price.
Price is a powerful leverTough times demand more skillful pricingMost companies have opportunityImprove by affecting:The internal decision process for pricingThe customer’s buying decisionA sustained initiative is required, driven from the top
Increase Brand Preference and thus pricing powerImprove your company’s offering to match customer value preferences Provide an improved customer experience Conduct long-term brand-building communications
Thiscompany hasn’t built Brand Preference, so lacks pricing power. We see this happen for three reasons:The company hasn’t innovated or evolved its offering to meet unserved or underserved customer needs and wants. The offering is not meaningfully differentiated.Offering and price structure are not well-aligned with what customers value. The result? Leaving money on the table with some customers, losing desirable orders from others, and having margins compressed by “trying to sell a Chevy customer a Cadillac at a Chevy price.” The customer’s experience in doing business with the company isn’t so great. Because the company hasn’t built strong Brand Preference through the customer’s consideration, buying and usage experience, the company has too many price-sensitive customers. Winning and losing transactions is overly dependent on price.
Price is a powerful leverTough times demand more skillful pricingMost companies have opportunityImprove by affecting:The internal decision process for pricingThe customer’s buying decisionA sustained initiative is required, driven from the top

Brand Preference Builds Pricing Power 11 6 11

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