Smarter Customers Smarter Pricing Vdef

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Key note presentation by Theo Slaats, partner at Deloitte at Deloitte Pricing Seminar May 12, 2011 at Amsterdam Hilton

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Smarter Customers Smarter Pricing Vdef

  1. 1. Pricing Excellence Smarter consumers, smarter pricingAmsterdam Hilton, May 12, 2011
  2. 2. Consumer mindsets are changing and both retailers and CPG companiesneed to be responsive to the challenges and opportunities this will create Implications for CPG Search for „value‟ Reassessing „values‟ companies Customers are: Social revolution through Companies need to: digital media • Increasingly focused on • Closely track, understand value and anticipate • Price sensitive, continuing Health and wellbeing • Recognise variation by to trade down and shop market and occasion around • Better understand • Continuing to emphasize opportunities for growth value for the medium term Sustainability and the green and value creation agenda • Still desiring convenience • Identify and develop new and indulgence products and execute with the trade Experiential purchases1 © 2011 Deloitte The Netherlands
  3. 3. In addition, changes in the structure of the market are creating uniquechallenges for CPG companies (1/6) Comment “Promotions are intensifying” • Promotional intensity is increasing • Retailers increasingly demand supplier Unprecedented Promotional Activity investment in marketing and promotion 40% • Promotional events have low success rate Percent Product on Promo 39% 38% Implication 37% 36% • Clarity on customer profitability needed to identify 35% Jan Jan Apr “hidden investments” 2006 2009 2010 • Strong post and pre-evaluation disciplines needed around investment activity2 © 2011 Deloitte The Netherlands
  4. 4. In addition, changes in the structure of the market are creating uniquechallenges for CPG companies (2/6) Comment“Cross-border and cross-channel trade is increasing” • Pan-European procurement contracts have the potential to become increasingly common Pan European grocery retailers • Increasing risk that prices will be levelled-down to Sales from Company Sales from Overseas Overseas the lowest price across geographies and channels 2007 (%) 2013F(%) Delhaize Group 76 78 Ahold 75 79 Metro Group 58 72 Carrefour 55 64 Implication Schwarz Group 52 61 Casino 38 48 Rewe Group 32 40 • Specific strategies and tactics avoid “levelling down” Edeka 5 2 • Cross-border account management processes in Note: Retailers listed in this table do not generate more than 75% of sales from a single channel; F - forecast. commercial operating model for key international Source: Planet Retail accounts • Methods and tools for tracking and managing the grey market become more important3 © 2011 Deloitte The Netherlands
  5. 5. In addition, changes in the structure of the market are creating uniquechallenges for CPG companies (3/6) Comment “The retailer is king” • Top 5 grocers account for 50-80% of grocery spend in most major European economies • Retailers increasingly act as gatekeeper to the % market share of top five food retailers by country consumer • Retailers increasingly centralise and professionalise procurement, demanding „more for less‟ Implication • Trade programmes must deliver compelling category proposition for the retailer • Business account managers must have the right capabilities and information 2003 • Trade terms need to deliver defensible and 2009 conditional pricing, while customers demand off- invoice/fixed paymentsSource: Mintel 2010 & 20044 © 2011 Deloitte The Netherlands
  6. 6. In addition, changes in the structure of the market are creating unique challenges for CPG companies (4/6) “Hard discounters are emerging Comment as an important channel” • Discount retailers are outperforming growth trends in the FMCG sector as a whole • Challenging all other channels; cash/carry, super Global discount channel penetration by region: and hypermarkets, specialty and convenience stores 2009-2014F • Introducing new categories and brands to achieve Central growing acceptance by consumers‟ Western & Eastern Europe EuropeNorth 2009: 12.5% 2009: 5.3%America 2014: 14.2% 2014: 7.5%2009: 1.9% Implication2014: 2.0% Central & • Discount retailers offer huge volume sales South America Asia & Africa & 2009: 1.4% Middle East Oceania 2014: 1.8% 2009: 0.9% 2009: 0.5% • The lower total cost to serve can be lowered by 2014: 1.1% 2014: 0.6% reduced account mgmt./field sales support required • Limited control possible over promotional activitiesSource: Planet Retail 2010 5 © 2011 Deloitte The Netherlands
  7. 7. In addition, changes in the structure of the market are creating uniquechallenges for CPG companies (5/6) Comment “There is significant private label activity” • Expansion of private increases price competition, • Many major retailers are undertaking SKU rationalisation, carving out more space for private Private label penetration vs. concentration 2010 label, Switzerland • Strongest private labels are becoming brands in their UK own right‟ Spain Germany Netherlands Belgium France Australia USA Implication Canada India Italy NZ Japan South Africa China Brazil • Work with retailers to create optimal category Russia Mexico solutions that serve both the retailer and supplier • Understand true cost to serve, to protect and improve margins • Reach out directly to the consumer through new channels, social media, brand loyalty programmesSource: Planet Retail 20106 © 2011 Deloitte The Netherlands
  8. 8. In addition, changes in the structure of the market are creating uniquechallenges for CPG companies (6/6) Comment “Commodity prices are rising” • Margins are squeezed due to rising input costs and retailer demands for year-on-year price reductions in real terms Food, energy push up consumer prices • Retailers accept price increases, but are at the same Wall Street Journal 17 Feb 2011 time looking to protect and increase their own margins Retailers face struggle to pass on increase to Implication consumers Financial Times17 Feb 2011 • Price and promotions synchronised with input costs, if price elasticity and category positioning allow it • Proactive SKU rationalisation can optimise the product portfolio margin • Shifting consumers to higher price, higher margin products has a key role in protecting and enhancing marginsSource: Planet Retail 20107 © 2011 Deloitte The Netherlands
  9. 9. Pricing & Profitability Management covers the full value chain from brandowner to consumer Price setting and pricing execution Brand owner - Align trade/wholesale price setting - Minimise margin leakage Channel effectiveness - Use consumer, shopper and customer insight to optimise the value Distributors proposition and strengthen pricing - Understand customer profitability and cost-to-serve and align trading terms with channel and customer growth strategies Promotional effectiveness - Better aligning promotions with brand strategies and channel / Points of customer characteristics Sale (POS) - Establish rigorous pre and post evaluation disciplines Point of purchase optimization - Align consumer pricing strategy behind a clearly defined Consumers/ (premium/standard/ economy) brand architecture Shoppers - Understand pricing elasticities by channel / outlet type and work with customers to create win-win category business plans8 © 2011 Deloitte The Netherlands
  10. 10. In a European context, this requires a careful understanding of Europe-wideand country level considerations Europe-wide Country level • Increased transparency • Different languages and culture across borders • Differing levels of consumer Consumer • Brand consistency vs requirements and sophistication • Convergence on value • Alternate value drivers • Pan-European procurement contracts • Localised promotion pressure Customer • Standardised trade terms vs • Local trading practices • Scale of pan-European • Localised competitors competitors • Strength in pan-European • Need for local/regional autonomy initiatives in negotiations CPG • Global/European • Need to recognise local vs company standards/requirements legislative differences in pricing, discounting, promotions etc • Minimising cross border conflict • Minimising cross channel conflict9 © 2011 Deloitte The Netherlands
  11. 11. The development of leading Pricing & Profitability Management capabilitiesis a journey – with value unlocked along the way Leading capabilities Basic capabilities Emerging capabilities • Discrete price and promotion • Integrated price and promotion • Price and promotions strategies strategy Strategy • No investment differentiation • Investment differentiated based • Investment aligned with most on customer scale strategic customers / channels • Prices set using historical • Pricing using predictive • Prices set using cost plus analyses modeling and advanced Analytics • Limited / no post-promo • Promotions achieve minimum statistics analysis ROI • Calculate “real ROI” • Monitoring performance via • Gaining real-time insights using Visibility • Ad-hoc tracking and reporting syndicated data retailer point-of-sale data • Integrated go-to-market • Silo‟ed organisation • Dotted-line reporting to create Organisational responsibilities Alignment (Mkt = Pricing; Sales = Trade shared go-to-market Promos) responsibilities • Common incentives across marketing and sales Execution • Achieving targets at any cost • Executing a business plan • Managing full customer P&L • High-level guardrails with • Integration of guardrails with Governance • Ad-hoc, when needed semi-annual reviews standard performance reporting10 © 2011 Deloitte The Netherlands
  12. 12. From our experience, there are six key areas upon which achieving optimalPricing and Profitability Management depends Establish Deliver a process design framework that engages the for growth sales force Align business Create a and financial simplified and strategies to defensible PPM drive change approach Ensure Align leadership programme is & communicate sustainable post- to customer base implementation Key Success Factors in Pricing & Profitability Management11 © 2011 Deloitte The Netherlands
  13. 13. Disclaimer:Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is alegally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited andits member firms.Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network ofmember firms in more than 140 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloittesapproximately 170,000 professionals are committed to becoming the standard of excellence.This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, Deloitte Global Services Limited, Deloitte Global ServicesHoldings Limited, the Deloitte Touche Tohmatsu Verein, any of their member firms, or any of the foregoing‟s affiliates (collectively the “Deloitte Network”) are, bymeans of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitutefor such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making anydecision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Networkshall be responsible for any loss whatsoever sustained by any person who relies on this publication. © 2011 Deloitte The Netherlands

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