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Brighton Landing West 10 Guest Street Boston, MA USA 02135 www.vantagepartners.com This publica6on may not be reproduced, stored in a retrieval system, or transmiAed in whole or in part, or in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior wriAen permission. Copyright © 2014 by Vantage Partners, LLC. All rights reserved. All rights reserved.
The Value of Pricing Discipline A Vantage Partners Sales Study on the Impact of Pricing Excep;ons
David Chapnick, Senior Consultant [email protected]
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Vantage Partners
n Global consul6ng firm, spin-‐off of the Harvard Nego6a6on Project (which we helped to found in 1979)
n Mission of driving measurable business results by transforming how companies nego6ate and manage their most important rela6onships
n 25+ years of experience consul6ng to Fortune 500/Global 1000 companies
n Prac6ces in Sales Nego6a6ons & Account Management, Sourcing & Supplier Management, Alliance Strategy & Management, and Outsourcing Nego6a6on & Governance
n Recognized thought leaders l Faculty at Harvard, Dartmouth, West Point l Mul6-‐year studies, best selling books, HBR ar6cles, library of white papers
n Pro bono applica6ons through l West Point Nego6a6on Project – Unit Training, Special Ops Nego6a6on Briefings, Nego6a6ons in Afghanistan
l Conflict Management Group (now Mercy Corps) – Arias Peace Accords, New Cons6tu6on in South Africa, Israeli-‐Pales6nian Nego6a6on Partners
Copyright © 2014 by Vantage Partners, LLC. All rights reserved. 2
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Maintaining pricing discipline is challenging!
Copyright © 2014 by Vantage Partners, LLC. All rights reserved. 3
n This study was designed to understand:
u the depth and prevalence of pricing excep6ons
u how companies manage them
u what drives companies to grant pricing excep6ons
u the implica6ons of gran6ng excep6ons
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Agenda
n Study Demographics
n Study Results u Frequency, Size, and Impact on ASP u Reasons Why Companies Make Excep6ons u Implica6ons of Making Excep6ons
n Lessons and Recommenda6ons from Best-‐in-‐Class Companies
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Demographic InformaJon
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Company Size, Role, and Years in Industry
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n 83 senior sales execu6ves (managers and above) of large F500 organiza6ons responded
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Industry Breakdown
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n Over 80 companies in 11 industries were represented
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IllustraJve ParJcipaJng Companies
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n Allstate Insurance n American Express n Ametek n Aramark n Arthur J Gallagher and Co n AT&T n Bed Bath & Beyond n BMO Harris Bank n Boeing n Cargill n Chase n Cisco Systems n Ci6 n Coca-‐Cola n CSC n Dignity Health n DZ Bank
n Emdeon n Experis n GE Capital n Genworth n General Motors n Haworth n Health Net n ING Capital n John Hancock n Kohl’s n Lockheed Mar6n n Microson n Morgan Stanley n NAPA n Nestle Waters n Oracle n Orange Business Services
n Panasonic n Pfizer n QBE n Raytheon n Resources Global Professionals n Ricoh n Sanofi n SAP n Sears Holdings n TD Bank Group n Thomson Reuters n UBS n Ultra Electronics n Unisys Corpora6on n Walgreens n Waste Management n Wells Fargo
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Frequency, Size, and Impact on ASP
Study Results
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What is a pricing excepJon?
Pricing Excep6on: A decision to sell a product or service below list or “standard” price. Pricing excep6ons can occur for a variety of reasons.
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Quick Poll:
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n How oXen do you sell items to your customers or clients at anything other than list (or “standard”) price? a) Never b) Rarely (<25% of the 6me) c) Some6mes (25-‐50%) d) Frequently (51-‐75%) e) Almost Always (75-‐100%)
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12 Copyright © 2014 by Vantage Partners, LLC. All rights reserved.
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13 Copyright © 2014 by Vantage Partners, LLC. All rights reserved.
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The long-‐term cost of making excepJons may be even greater
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The long-‐term cost of making excepJons may be even greater
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Why Companies Make ExcepJons
Study Results
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Why do companies make excepJons?
Systemic pricing excepJons: Commercially jus6fiable standard pricing adjustments – incen6vizing “good customer behavior”
u Passing savings on to a customer due to lower cost to deliver goods or services (e.g., volume discount, flexible delivery 6me, looser SLAs)
u In exchange for providing value to the seller (e.g., longer-‐term purchase commitment, “wallet share” commitment, serving as a reference, future price increases built in)
u Different pricing due to the nature of the customer (e.g., 501(c)(3))
Ad hoc pricing excepJons: Less jus6fiable reasons –vary significantly but all reward “bad customer behavior” u Customer threat to go to a
compe6tor u Escala6on to a more senior
person u Unprofessional treatment,
emo6onal outbursts, or yelling u Fear that the customer might
leave u Customer request for a discount u Customer demand to match a
price given to another customer
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18 Copyright © 2014 by Vantage Partners, LLC. All rights reserved.
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When should you grant an excepJon to match compeJtor pricing?
Is price truly the only reason your customer is staying with you? Consider… u Will your company fill an unmet need for the customer? u Does your company provide truly unique value in some way? u Can your compe6tors (or the customer on its own) match the value you can provide?
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Should you give in to a customer just because they ask for a pricing excepJon?
Look for legiJmate ways to bring down the price; for instance: u Tie a discount to a higher volume purchase or to a longer-‐term commitment? u Addi6onal value-‐added services or components of the purchase that could be taken out
of the deal to legi6mately reduce the price? u Customer serve as a reference account, assist your company with improving your own
products in some way, or offer value through other means?
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Should you grant an excepJon out of fear the customer will walk?
Choosing to make a pricing excepJon based on a threat may be unwise because: u This rewards the customer for making a threat and incents them to do it again in the future u If your company is serving end users who are not at the table, your buyer’s threat to walk may well be hollow
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22 Copyright © 2014 by Vantage Partners, LLC. All rights reserved.
n Companies that granted ad hoc excep6ons the most onen experienced more rapid ASP decline
n Over 30% of the companies that frequently granted ad hoc excep6ons reported a decline in ASP aner only 3 months
What impact does granJng ad hoc excepJons have on ASP?
Companies that rarely/never granted ad hoc excep6ons were 64% more likely to maintain ASP aner 1-‐2 years
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ImplicaJons
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25 Copyright © 2014 by Vantage Partners, LLC. All rights reserved.
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Lessons and RecommendaJons from Best-‐in-‐Class Companies
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Managing the risks of enhancing pricing discipline
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Implemen,ng pricing discipline is hard work!
n Prices must be: u set at a level that is fair and defensible by the sales team u commensurate with the value the customer receives u within the market
n Send a clear message that your company will not make pricing adjustments without a clear and defensible reason (and follow through)
n Give sales people parameters within which to develop crea6ve solu6ons that meet both sides’ interests (e.g., a lower price for a longer term commitment, a volume purchase, being a reference account)
n Specify the profile of customers your organiza6on is willing to let walk in the name of beAer pricing discipline
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Lessons from companies that are best in class in managing pricing excepJons
Copyright © 2014 by Vantage Partners, LLC. All rights reserved. 29
1. Determine the extent to which the organiza6on’s pricing excep6ons policy is contribu6ng to ASP decline
2. Ensure there is a clear process and guidelines, and, when needed, an escala6on path is in place for determining when and why pricing adjustments are granted — and that the sales teams knows what this is
3. Ensure sales teams are equipped with clear and jus6fiable messaging to explain to customers why the price is what it is
4. Build a mechanism to track pricing excep6ons over 6me, including who made them, why, and the impact they had
5. Ensure sales incen6ves are aligned with promo6ng increased pricing discipline and do not reward “bad deals”
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QuesJons?
NEGOTIATION | STRATEGIC ACCOUNT MANAGEMENT CROSS-‐SELLING | PRICING DISCIPLINE | CUSTOMER INSIGHT
GO-‐TO-‐MARKET PARTNERSHIPS
Copyright © 2014 by Vantage Partners, LLC. All rights reserved.
10 Guest Street Boston, MA 02135 T: (617) 904-‐7800 F: (617) 904-‐7850 www.vantagepartners.com
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