#Pricing Hero's and Leadership

© Sans Prix Pty Ltd, 2002-2014 Slide 2
Question…
Who are the world’s most
admired companies?

The World’s Most Admired Companies?
Fortune Magazine, 2009, 2011 & 2014
In 2009…
1. Apple
2. Berkshire Hathaway
3. Toyota Motor
4. Google
5. Johnson & Johnson
6. Proctor & Gamble
7. FedEx
8. Southwest Airlines
9. General Electric
10. Microsoft
In 2014…
1. Apple
2. Amazon.com
3. Google
5. Starbucks
6. Coca-Cola
7. Walt Disney
8. FedEx
10. General Electric
In 2011…
1. Apple
2. Google
5. Proctor & Gamble
6. Coca-Cola
7. Amazon
8. FedEx
9. Microsoft
10. McDonalds

Question…
What are the top 10 brands
in Asia-Pacific?

The Top 10 Brands in Asia?
Millward Brown, Brandz 2009…2011…and 2014
In 2009…
1. China Mobile
2. Industrial &
Commercial Bank of
China (ICBC)
3. Toyota
4. China Construction
Bank
5. Bank of China
6. Nintendo
7. NTT DoCoMo
8. Honda
9. Nissan
10. Canon
Brand Value The dollar value of each brand is the sum of all future earnings that the brand is forecast to generate (i.e. ability to generate demand), discounted to present day value
In 2014…
1. Tencent
2. China Mobile
3. International &
Commercial Bank of
China (ICBC)
4. Baidu
5. Toyota
6. Samsung
7. China Construction Bank
8. Commonwealth Bank of
Australia
9. ANZ
10. Agricultural Bank of
China
In 2011…
1. China Mobile
2. Industrial & Commercial
Bank of China (ICBC)
3. China Construction Bank
4. Toyota
5. Baidu
6. China Life Insurance
7. Bank of China
8. Agricultural Bank of
China
9. NTT DoCoMo
10. Tencent/QQ

Question…
Which companies would
be most admired for their
pricing?
…and why is pricing so
important?

© Sans Prix Pty Ltd, 2002-2014
Why is Pricing so Important?
Impact on Operating Profit of a 1% improvement in…
2.3%
3.3%
7.8%
11.1%
Fixed Costs Volume Variable Costs Price

…Regardless of the Industry
Impact on Operating Profit of a 1% improvement in Price
22.0%
13.5%
12.7%
12.3%
11.4%
11.1%
10.4%
10.1%
9.8%
9.3%
8.6%
6.8%
6.1%
3.0%
1.8%
Automotive
Transportation
Metals & Mining
Chemicals
High Tech &
Electronics
Aurospace & Defense
Paper
Insurance
Healthcare
Oil & Gas
Communications
Consumer Products
Pharmaceuticals
Banking
Investment
Impact of a 1% Price Improvement on Operating Profit
For The Kroger Retail Food
Chain…
► If prices were increased 1%...?
For Coca Cola…
► If prices were reduced 1%...?
For Continental Airlines
► 44mill passengers x Average fare
of $193 = Loss

You offer a service with a 30% margin, and you are planning on reducing
prices by 5%. What sort of volume uplift is required to maintain existing
revenue?
You have a service with a 20% margin, and you are planning on increasing
prices by 8%. What sort of volume are you putting at risk?
 20% Volume Uplift 10% Volume Uplift 5% Volume Uplift
 8.2% of volumes  28.6% of volumes  38.7% of volumes
Quiz Time
Decreasing & Increasing Prices

Pricing Hero #1
Warren Buffet, Berkshire Hathaway

Pricing Hero #1
Warren Buffet, Berkshire Hathaway
“…if you have to have a prayer session
before raising…prices…then you’ve got a
terrible business”
“Price is what you pay…value is what you
get”
“The single most important decision in
evaluating a business is pricing power”

Lets turn back the clocks to…
1953

Pricing Hero #2
Lee Iacocca, Ford (at the time)

Fast Forward to…
1964

Pricing Hero #3
Donald Washkewicz, Parker Hannifin

Parker Hannifin
Product Segmentation, and Key Results
Net Income ($mill)
$130
$673
2002 2006
Return on Invested Capital
7%
21%
2002 2006
Share Price v S&P 500
2001 to Present
88%
25%
S&P500 Parker
Is the Price Right?
Over 800,000 Products
Divided into five new product categories based on factors like competition,
specificity and value added
→ → → → Products become increasingly specialised → → → →
Category
A
Core Product
B
Partially
differentiated
product
C
Partially
differentiated
product
D
Differentiate
d Product of
system
E
Specials or
classics
Product
Example
High volume
versions of
basic valves,
fittings, hoses
& motors
Pumps Tubing
systems
Micrometering
device
Power unit
Pricing
Rationale
Highly
competitive
markets;
prices aligned
with market
Differentiation
that adds
value for
customer
Niche products
with no exact
competitive
matches
Highly
engineered
solutions to
improve
customer
profitability &
productivity
Custom
designed for
customer
applications; a
legacy
product, or
only available
at Parker
Range of
Price
Increase
3% - +5% 0% - 5% 0% - 9% 0% - 25%
More than
25%

Parker Hannifin
Where are they today?
$0
$20
$40
$60
$80
$100
$120
1/3/00 1/3/02 1/3/04 1/3/06 1/3/08 1/3/10 1/3/12
Share Price
$3,233,881,00
0
$3,106,832,00
0
$3,393,563,00
0
$3,411,666,00
0
Sep-11 Dec-11 Mar-12 Jun-12
Revenue
$819,439,000
$725,510,000
$803,248,000
$839,408,000
Sep-11 Dec-11 Mar-12 Jun-12
Gross Profit

Pricing Leader #4
Reed Hastings, Netflix

Pricing Leader #4

Pricing Leader #5
Patti Wolf, Glass WhiteBoards

• Toughened
• Starfire, and
• Magnetic
• And in many sizes
Glass Whiteboards
Come in Three Models

$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
450 x 450 900 x 600 1200 x 900 1500 x 900 1800 x 900 1500 x 1200 2000 x 1000 1800 x 1200 2400 x 1200
Toughened Current Starfire Current Magnetic Current
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
450 x 450 900 x 600 1200 x 900 1500 x 900 1800 x 900 1500 x 1200 2000 x 1000 1800 x 1200 2400 x 1200
Toughened New Starfire New Magnetic New
Re-priced on
PricingProphets.com
Product Ladder
Optimisation
Est. Revenue Uplift
+11%
Optimisation of the Product Ladder

A Quick Diversion…
Ron Johnson, formerly of JC Penney

Lessons
From and For Pricing Leaders
►Champion of the Cause
►Be Prepared, Be Bold and Back Yourself
►The Customer is the Single Point of Failure
►Look at Other Industries
►Pricing is Holistic
►There’s No Such Thing as a Pricing Laboratory
►When you’re Adding Value, Add to the Price
►Cost-Plus Pricing is a flawed strategy

And Finally….
Ten Ways You Can Start
Your Pricing Leadership
Journey

Number 10
Develop a Pricing Strategy…

Number 10
...that Includes a Discounting Policy

Number 9
Don’t Condition the Market

Number 8
Form a Pricing Committee

Number 7
Don’t Talk About Costs…
…and remove invoice shock

Number 6
Its Not About You

Number 5
All Value Is Subjective

Number 4
All Value Is Contextual

Number 3
Segment the Market

Price
Buyers
Relation-
ship
Buyers
Value
Buyers
Poker
Players
Number 2
Understand Your Buyer

Number 1
Remember Goldilocks…?

Have We Got Time for
Any Questions…?

Jon Manning
Founder & Director, Sans-Prix.com
Founder & Managing Director, PricingProphets.com
PO Box 533, Ascot Vale, Vic 3032 Australia
youtube.com/user/PricingProphets
linkedin.com/company/Pricing-Prophets
jon@sans-prix.com
+61 (0) 405 629-141
@SansPrix | @PricingProphets facebook.com/PricingProphets
http://www.SansPrix.BlogSpot.com
SlideShare.net/SansPrix
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