Pricing In Economic Downturn Francois Delvaux
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proactive pricing in times of economic downturn
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- 1. Pricing in Times of Economic Downturn February, 2009
Francois Delvaux Director, The House of Marketing
- 2. Introduction: The House of Marketings pricing practice team
collaborates with companies to grow their top and bottom line and
build value management capabilities
- Helping the company make relevant strategic choices
-
- Market assessments and finding growth opportunities
-
- Segmentation and positioning strategy
-
- Pricing opportunity assessment and design of pricing
strategy
-
- Employer branding strategy
I. Strategic Marketing II. Go-to-Market III. Organization
capabilities
- Building and activating the go-to-market strategies
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- Implementing go to market strategies across 4 Ps
-
- Implement value based pricing & proactive price
management
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- Customer experience and customer loyalty initiatives
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- Integrated marketing campaigns
- Sales and marketing organization building
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- Organization and structure
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- Pricing and value management competencies development
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- Customer Process Management
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- Customer relationship management (CRM)
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- Senior coaching and change management
IV. Performance Management
- Good execution of strategy and sound business decisions
-
- Customer Life Time Value Management
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- Return on Marketing Investments or assets (ROMI/ROMA)
-
- Performance metrics and marketing dashboards
- 3. How We Help Companies Improve Its Profitability
- Price opportunity assessments (POA):
- Uncover drivers of missed price realization, potential
price/value misalignments.
- Identify quick wins & value capture growth opportunities.
Provide business case and roadmap.
Diagnostic / find money Strategy Support Activate Strategy Enhance
Capabilities
- Policy: Develop proactive policies and actionable tactic to
manage sources of price leakage and enhance price realization
- Value understanding: Understanding and quantifying value
created for customers and use these insights to launch a new
product, evolve a current offer and tweak a price structure
- Price menu for current or new products/ services: Develop or
enhance customer offerings and price menu to more profitably serve
and grow customers
- Pilot and roll-out: Implementation of pricing strategy, pilots,
coaching of market facing teams, ROI tracking
- Account preparation: Work with sales teams to prepare for
upcoming account renegotiations or major launches
- Pricing process: Design and deploy price management processes,
line of sight mechanisms
- Program: Design and deploy capability programs to build
internal price or value management capabilities
- Train and codify: Coaching an organization about value based
pricing principles (sales, product mgrs, marketing). Help
organization deploy value-based price management skills (using
tools, applied training, coaching, and change management)
- 4. Objective
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-
- Common Pitfalls of Pricing
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-
- Proactive Pricing in Down Turn
- 5. Pricing in The News
- InBev increases prices for third time this year *
- 07/01/2009, Het Laatste Nieuws
- NMBS increases tariffs * 01/02/2009, De Standaard
- Kinepolis: Compens par une augmentation du prix moyen des
tickets ... 21/02/2009, LEcho
Increasing price Delhaize launches concept low cost store red
market 21/01/2009, De Tijd Danone launches discount range of
yoghurt 12/09/2008, Le Figaro Punch management will work four
fifths 10/02/2009, De Standaard VW stops its production for a week
23/02/2009 * Note: Common reasons given are increased costs of raw
materials and other resources, reduced sales and large inflation
Lowering price or price image Cutting Costs $ $
- 6. THOM Pricing Survey: Pricing is top of mind & perceived
as difficult to change in market
- 50% of marketeers think their customers will become more price
sensitive because of current economical situation
- 32% said prices will definitely have to be lowered in coming
year
- Only 14% of respondents said would raise prices , and in 10% of
the cases, would raise prices less than the increase in costs,
putting additional strain on margin
- And yet 62% of respondents say their customers perceive their
product as offering a unique solution and are willing to pay a
premium for it
- 48% agree that it is hard for them to introduce price
increases
- 33% of respondents confirms that there are typically
conflicting agendas or priorities around pricing decisions
Source: THOM Pricing Survey 2009 preliminary results of 700
participants
- 7. Objective
-
-
- Common Pitfalls of Pricing
-
-
- Proactive Pricing in Down Turn
- 8. Common Pitfall: Our price levels is the root cause of our
problems Price Level and is, therefore, the only way to overcome
it.
- 9. Is this your company? PITFALLS LIKELY OUTCOMES Creating
higher (or unrealistic) goals for the direct or indirect sales
teams Defending prices by offering free value-added services
Offering better price to customers who ask for a lower price
- Higher pressure in market to gain or defend market
share/volume
- Increased risk of price wars
- Reduces the perception of value of the companys services
- Lowers margins because of increased costs to serve
- Rewards a customers aggressive price behavior
- Encourages suppliers to compete against one another
1 2 3
- 10. Is this your company? Discounting a high-value offering to
attract the price sensitive customers Systematic lowering of prices
in market to boost sales volume Price levels based mainly on costs
and adjusting price when cost changes
- Destruction of value in the market
- Jeopardize current brand position
- Encourage competitive activity
- Possibly reducing margin pool
- Risk future price setting efforts
- Creates missed opportunities to align price to value
- More price conscious customers
4 5 6 PITFALLS LIKELY OUTCOMES
- 11. Putting everything together, pricings success in reality
depends on many elements Reality: Pricing is only the tip of the
iceberg, Price Level And many elements are part of pricings success
Value Communication Price and Offer Structure Value Creation
Pricing Policy Organizational Alignment + Sound Value & Price
Management
- 12. Objective
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- Common Pitfalls of Pricing
-
-
- Proactive Pricing in Down Turn
- 13. Your Chess board Price Paid Value Received high low low
medium high medium Price relative to Value C Missed Opportunities B
Unharvested Value A
- 14. Proactive pricing activities you can do in times of
economic downturn
- Reinforce the value you provide in the market
- Prevent your value to become commoditized
1
- Adapt offer to grow among different targets
- Change aspects of cost or value to profitably serve target
2
- Have good controls on discounts and incentives
- Ensure when you flex done proactively & organization
disciplined
3
- Make choices on which customers to invest in
- Wisely allocate your scare resources and have real
partners
4
- Prepare organization and make price adjustments
- Enable organization to implement price changes in market
5
- 15.
- Organization does not understand the differential value it
provides in market
- Feature -> Benefit -> value
- Sales does not have the ability (skills, tools, etc.) to
explain differential value to customers
- Not effectively communicating value to change customers
perceptions
- Pricing of new products not aligned with the differential value
created
Reference Value 0,85 / kg Next best competitive Alternative
internal mixing costs Less Defective 0,08 Less WIP Scrap 0,07 Your
positive differentiation Less Freight 0,03 Fewer Material Rejection
0,05 Goal: Sell on value not on price
- Reinforce the value you provide in the market
- Prevent your value to become commoditized
1
- 16. Goal: Frame the reference
- Reinforce the value you provide in the market
- Prevent your value to become commoditized
1
- 17.
- Adapt offer to grow among different targets
- Change aspects of cost or value to profitably serve target
2 High Low Received Value Segment and Size A B C D Setting price
here leaves money on the table and communicates that value does not
have to be paid for 1 2 .and misses volume growth opportunities by
over pricing these customers out of the market 3
- 18.
- Adapt offer to grow among different targets
- Change aspects of cost or value to profitably serve target
2
- Capitalize on segment differences
- Create flexible offer - with different levels of value and
price
- Sell high value/high cost services a la carte
INDEPENDENT CHOICE ACTIVE CHOICE PROFESSIONAL CHOICE PRICING
ORDERING FULFILLMENT HANDLING FEE FREIGHT PRE-SALES TECH SUPPORT
POST SALES TECH SUPPORT FINANCING SALES SUPPORT Must order on -
line Can use any method of ordering Can use any method of ordering
Within two business days Within one business day Same day For
orders less than 1000 For orders less than 500 For orders less than
100 All freight expenses charged Free freight for orders more than
2000* Free freight for orders more than 1500* Not Included Requires
minimum purchase of 50k per quarter Requires minimum purchase of
30k per quarter Not Included Not Included Requires minimum purchase
of 30k per quarter 10 - day net terms 30 - day net terms 30 day net
terms Available for complex orders only Available for placement
pricing, availability, and order verification Available for
placement pricing, availability, and order verification Receive
most aggressive pricing Receive aggressive pricing Receive less
aggressive pricing
- 19.
- Adapt offer to grow among different targets
- Change aspects of cost or value to profitably serve target
2
- Capitalize on segment differences
- Create flexible offer - with different levels of value and
price
- Sell high value/high cost services a la carte
- 20. % Off list prices Volume Example of unwarranted variance
- Silos and incentives in organization driving misalignment on
pricing goals
- High price variability leading to low Average Selling Prices
(ASPs)
- The number of special pricing deals higher than required
- Price leakage larger than generally understood & from
unexpected sources
- A small % of transactions account for a significant share of
price leakage
- Discounting policies not reflecting all related costs
Goal: Address unwarranted variance and have proactive policies to
drive desired behaviors
- Have good controls on discounts and incentives
- Ensure when you flex done proactively & organization
disciplined
3
- 21.
- Goal: Manage your price waterfall
- Identify where and how much money is being deducted from the
list price
- Linking quantified price leaks to specific points in the price
management process
Pocket Price
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- The List Price net of all known adjustments (discounts
etc)
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- The actual revenues realized
Price (Euros)
- Have good controls on discounts and incentives
- Ensure when you flex done proactively & organization
disciplined
3
- 22.
- Make choices on which customers to invest in
- Wisely allocate your scare resources and have real
partners
4
- Winning a large share of complex, high cost-to-serve
customers
- True cost-to-serve & pricing not in line
- Losing low cost-to-serve customers
- Pricing decisions creating sub-optimal loading of capacity
& use of resources
- Price policies do not address high cost to serve behaviors
- Not factoring in opportunity costs or impact of pricing
decisions
Price Product Cost Service Costs Price levels & policies that
discourages costly behaviors Price structure that aligns price with
value & cost-to-serve cost Goal: Pricing, policies and
structure that protects or discourages costly behaviors Goal:
Manage behaviors Price
- 23. High VC: Low CM High FC: High CM Opportunity cost: CM
foregone Drive Price Drive Volume Capacity Optimization Cost Type
Strategic Objective
- Defining objectives and knowing sales break evens per pricing
action
- Understanding how your costs Change with changes in Sales
- Having relevant checks and balances within organization
- Evaluation of effectiveness of pricing actions
- Lack of pricing ownership and accountability in
organization
- Not understanding sales break even when change price
- Not anticipating market responses
- Not preparing ways customers can proactively adapt their
behaviors to avoid price changes
- Bad timing of raw material cost increase pass through
- Prepare organization and make price adjustments
- Enable organization to implement price changes in market
5
- 24. Take your own pricing in downturn diagnostic
- Visit our web site to take part in survey
- Complete 16 pricing in downturn quiz and see where price and
margin realization opportunities exist
- Leverage existing tools and THOMs experiences
- 25. Sample sectors we focus on when it comes to pricing and
value management Logistics and distribution Financial Medical
equipment Software and ICT
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- Understanding value drivers
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- Getting paid for services
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- Realigning offerings to capture more volume or margins
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- Changing pricing policies, price metrics, pricing models
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- Introducing new pricing models to market
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- Understanding and quantifying value for current/new
products
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- Coaching sales teams to sell value proposition
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- Enhancing value selling activities
Examples of interventions
- 26. How to get in contact:
- Pricing and Value Management
- Mobile +32 (0)495 24 29 86
The House of Marketing Schuttersvest 75 B-2800 Mechelen Belgium
Office +32 (0)15 45 05 50 Fax +32 (0)15 45 05 51 www.thom.eu
www.mingle.be