The document discusses the importance of aligning pricing strategies with long-term goals and the need to avoid short-term thinking that can hinder profitability. It emphasizes a value-based approach to pricing, where better data and understanding of competitors can enhance pricing power and revenue. The piece advocates for a structured change plan that involves educating teams, managing perceptions, and slowly adopting innovative pricing strategies to improve business results.

1. Pricing in a Constrained World Separating Rhetoric from Reality Professional Pricing Society Spring Conference April 20, 2007

2. The Current State of Pricing Agreement on “best pricing” practices Great results by improving price realization The profession is focused on where we can make a difference but… We are losing focus on the strategic foundations of pricing That is where the biggest opportunities lie Many organizations see short-term gains but there is still more money to be made - much more

3. On the Path to Pricing Nirvana …Watch Out for Death Valley Long-Term Goals Deliver superior value Price to value Hold the line during negotiations Manage our competitors Get sales involved Educate the organization Short-Term Priorities Make the quarter Grow market share Hit margin numbers Negotiate with major accounts Quickly get answers out to the field Price new products Improve price realization Pricing teams often get stuck on the “short-term” side of the canyon – trapped by perceived constraints

4. The Importance of Price Good: 1% improvement in price=11% improvement in net profit But it focuses on “average” results Often leads to an imbalance in prices Better: Eliminating unnecessary discounting can improve margins by over 20% Best: Better list prices, less discounting, and tiered offerings significantly increase both profits and revenue

5. The Realities of a Value-Based Approach Don’t Move Too Fast! If we push too quickly towards the long-term view… Customers won’t know what hit them Negotiate harder Defect to the competition Competitors over-react Act opportunistically Start a price war Sales teams often unprepared Managers too! Failure to anticipate and manage these forces can cause pricing initiatives to backfire

6. What Keeps Us From Bridging the Gap? Perceptions Capabilities Data

7. Breaking Free of Perceived Constraints Conventional Thinking “ You can go for increased revenues or increased margins but not both” Leads to “pendulum” pricing and commoditization Destroys pricing power Most organizations struggle with making price changes Customers know your position will change Unconventional Wisdom Innovate for growth - price for profits Adopt a “high-low” product and pricing strategy Take your time – exert patient pressure

8. Taking It One Step at a Time Better Data Improves Results Level I Able to de-average by product or service line Basic knowledge – “Off the web site” Superficial, Anecdotal Level II Able to incorporate cost-to-serve data Understand offerings and general price ranges Based on perceptual research and sales input Level III Able to incorporate opportunity cost data Understand value of competitor offerings Can connect offerings to $$ for customers Costs Competitor Offerings and Prices Customer Value

9. Building the Skills of the Team Time to Be Honest With Yourself Level I Maintain price lists and policies Identify most relevant competitors and offerings Position benefits of the offering Level II Discern true trends versus outliers Analyze customer perceptions & work w/sales Analyze and sell against customer pain points Level III Establish price levels that capture a fair share of value Analyze value to the customer & define key differences Present quantifiable value propositions Pricing: Able to… Marketing: Able to… Sales: Able to…

10. Use Knowledge of Constraints To Develop a Structured Change Plan Identify Critical Changes Define end state, gaps, and vision Assess Readiness Assess conditions for change Develop Change Plan Develop transformation plan Sensitize The Organization Consensus on detailed changes Transform The Organization Pilot and roll out changes Constraints Define Universe of Options at Each Stage

11. Making the Change Agenda Work Understand Constraints to Define Options Pricing Change Agenda Customers Competitors External Regulatory Economic Environment Capabilities Strategy Objectives Business Performance Cost Structure Data & Infrastructure Motivation & Incentives Internal

12. Pricing Options Grow Over Time Services Industry Example Objectives - Years 3 - 4 Pricing capabilities increasing over time with: Improvements in service definition and standardization Improvements in analysis of costs and risks Pursuit teams’ ability to define, sell, and measure value In FY 2006, the value of signed contracts increased 32% and earnings tripled Fixed Fee Pricing Pricing to Value Better FTE-Based Pricing Better Cost-Plus Pricing Objectives – Years 1 - 2

13. Advice From the Field Iterate – Don’t Conquer “ It’s all about determining the roadmap and associated steps for getting from current state (of disaster) to the optimal future end state (of utopia)…I think it boils down to driving a series of ongoing small successes that help build upon each other to accomplish the end goal.” Former consultant and current Pricing Director “ I expect that it will take 4 to 6 years to bring about the changes that I think we need to make.” Former consultant and current Vice President, Operations “ Sometimes you have to take a ‘bad’ deal or two. Get over it and stay focused on the big picture.” - Former product manager and current consultant

14. Concluding Thoughts Time to Get Others Involved Adopt a long term, holistic, and strategic vision Be realistic about what can be done – and how long it will take Compromise when It improves business results Brings a key constituency along Stand firm when Short-term results are affected You can go for the knock-out Be someone that others can work with Sell the heck out of the results

15. Thank You! Mark Burton Vice President Holden Advisors 978-405-0022 [email_address] www.holdenadvisors.com