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
Implementing go to market strategies across 4 Ps
Implement value based pricing & proactive price
management
Customer experience and customer loyalty initiatives
Integrated marketing campaigns
Sales and marketing organization building
Organization and structure
Pricing and value management competencies development
Customer Process Management
Customer relationship management (CRM)
Senior coaching and change management
IV. Performance Management
Good execution of strategy and sound business decisions
Customer Life Time Value Management
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
Todays environment
Common Pitfalls of Pricing
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
Todays environment
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
Decline in margins
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
Todays environment
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.
Symptoms
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
Goal:
Capitalize on segment differences
Create flexible offer - with different levels of value and
price
Facilitate choices
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
Goal:
Capitalize on segment differences
Create flexible offer - with different levels of value and
price
Facilitate choices
Sell high value/high cost services a la carte
20. % Off list prices Volume Example of unwarranted variance
Symptoms
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
The List Price net of all known adjustments (discounts
etc)
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
Symptoms:
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
Goal:
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
Symptoms:
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
HTTP://WWW.THOM.EU
Complete 16 pricing in downturn quiz and see where price and
margin realization opportunities exist
Leverage existing tools and THOMs experiences
Share your learnings
25. Sample sectors we focus on when it comes to pricing and
value management Logistics and distribution Financial Medical
equipment Software and ICT
Understanding value drivers
Getting paid for services
Realigning offerings to capture more volume or margins
