Organizational Transformation to Value-Based Pricing:The Case Study of a Mid-Size Industrial Company

with Stephan Liozu, Ardex AmericasMonthly Webinar Series - March 2012

Copyright © 2012 by LeveragePoint Innovations Inc.No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means —electronic, mechanical, photocopying, recording, or otherwise — without the permission of LeveragePoint Innovations Inc.

This document provides an outline of a presentation and is incomplete without the accompanying oral commentary and discussion.

COMPANY CONFIDENTIAL

Sponsored by LeveragePoint the Software Solution for Value-based Pricing

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Today’s Presenter

St h LiStephan Liozu is President and CEO of Ardex Americas, a subsidiary of the German-based Ardex Group, where he serves on the Global Management Committee and is in charge of worldwide information technology strategic innovation and international specifications sellingtechnology, strategic innovation and international specifications selling programs. Ardex Americas produces high performance specialty building materials and has been serving customers in North, Central and South America for more than 30 years.

Currently, Stephan chairs the German-American Business Circle of Pittsburgh and serves on the Board of Directors of the World Affairs Council of Pittsburgh He has also been a visiting professor at universities inof Pittsburgh. He has also been a visiting professor at universities in Toulouse, France, and previously held leadership roles at Freudenberg & Company, the Saint-Gobain Group, and Owens Corning.

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Pricing Orientation & Most Commonly Used Pricing StrategiesCommonly Used Pricing Strategies

CusP i i Perceived –value pricingCus-

tomerPricing

Strategies Performance-based pricing Willingness-to-pay-based

pricing (WTP)

Profit

Cost Com-petition

Pricing Strategies

Pricing Strategies

Penetration pricing Price skimming Price follower behaviors

Cost-plus method Target ROI/ROS Breakeven-based analysis

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Price according to average market price Target CM pricing

Pricing Orientations are Not Mutually Exclusive!

Click to add sub title 01

y

V l b dAdd text in

here

Value-basedPricing Product AdvantageCompetitive

Intensity

• Economic Value Analysis

EVE®Competition-based Pricing

Cost-based Pricing

• EVE®

• “Dollarization” Process

• Dynamic cost-plus

• CVP Analysis

• Competitive Analysis

• Benchmarking

Competiti e IntelligenceDegree of

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• Activity-based Costing • Competitive Intelligenceg

Adoption

The 5 Organization C’s of Pricing Transformation

CHAMPIONS

Transformation

CENTER-LED CHANGEORGANIZATIONALTRANSFORMATIONTRANSFORMATION

CONFIDENCE CAPABILITIES

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Organizational Mobilization for Pricing

Champions at the top leading the internalization of pricing practicesChampions at the top leading the internalization of pricing practices

Organizational Change capacity requiring organizational mobilization

Formal and informal organizational Capabilities

Organizational Confidence acting as the fuel for superior pricing

Center-led management through specialized experts supporting divisional decision making process

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Progressive & Pragmatic Internalizationof Value-based Pricing

S So

Pilot

Increa

Full

Mo

of Value based Pricing

Stimuli

olutions

t Program

s

sed Adoptio

Adoption

DN

A

odification s on

Search Behavior Success Stories Transformation

Experiential Leaning Transformative Learning► Change mindset/frame of ref.► Learn a new language (value)► Importance of mentoring/coaching► Enduring and irreversibility of

► Knowledge foundation in pricing► Experiments & Pilot Studies►Trial & Error approach► Celebration of success & stories

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► Enduring and irreversibility of change to change the firm culture

► Celebration of success & stories► Analysis of failures/breakdowns

The Story of a Transformational Journey

Pricing Capability Grid™

Price Setting

Value-based

2014

Pricing

C titi

2011

Competition-based Pricing

2008

2010

Cost-basedPricing

Price RealizationWeak Medium Strong

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How Pricing Was Set in 2008

• Cost-Plus Approach with strong influence of target margins.pp g g g• Prices were set by the CEO and the CFO in small committee.• Strong influence from international and legacy pricing.• Pricing structure was very simple: list price + distributor discount.

Rare deviations were allowed from that structure.• No pricing authority was given to sales and marketing staff. No

latitude for price negotiation.• Pricing was not reviewed formally Heavy focus on marginsPricing was not reviewed formally. Heavy focus on margins.

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Step 1: Increased Focus on Pricing(2008-2009)( )

• Focused one person in the finance team to track pricing for the CEO• Started building a foundational pricing knowledge base:• Started building a foundational pricing knowledge base:• Introduced a pricing review during the monthly management meeting

to review pricing actions, variations and discuss competitive situation.

• Introduced concepts of value proposition, customer value perceptions and perceived benefits versus product attributes in theperceptions, and perceived benefits versus product attributes in the selling process.

• Identified the value and pricing champions in the group i.e. marketing and account managers who were engaged in the pricing process and understood the concept of value-selling.

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Step 2: Formalized Pricing Process(2009-2010)

• Created the position of Pricing & Revenue Optimization Manager reporting to CFO:

( )

• Develop monthly pricing cockpit:KPI‘s, value maps, & price waterfall analysis.

• Work with marketing function to define optimum pricing levels for new products based on margin targets and delivered customer value.

• Introduce a formalized Special Pricing Program with authority levels and dollarization of every deal versus competition.

• Reinforced participation in Pricing Society and enrollment in CPP:• 8 people passed CPP + 8 more enrolled.

• Created the Pricing Council • Monthly meetings with key managers to review pricing actions, variations and discuss

competitive situation.

• Formalization of the dollarization process as part of Council discussions.

• Introduce value-based pricing process for one product: case study number 1.

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Formalization of the Dollarization Process

• Increased the focus on the use of dollarization process and tools to pcapture and communicate the Ardex value proposition (product and service performance).Run new products through the manual dollarization process in 2010• Run new products through the manual dollarization process in 2010 as pilots.

• Create and post dollarization models for key products on the intranet p y pfor field use.

• Align marketing communication, technical training and product development to consistently promote our dollarized advantagesdevelopment to consistently promote our dollarized advantages.

• Educate distributors and contractors in all technical training classes.• Design web-based tools & marketing brochuresDesign web based tools & marketing brochures.

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Step 3: Implement Fundamentals of Value-based Pricing (2011)

• Creation of a Pricing Team reporting into Marketing• Addition of a sales and marketing analyst for pricing reporting.

• Pricing Manager becomes part of the New Product Innovation Team.

• Creation of all tools and templates for systematic customer value evaluation.

• Introduce Pricing early in the Stage Gate process and test value-drivers in the• Introduce Pricing early in the Stage Gate process and test value-drivers in the market at the concept evaluatiom stage with help from sales organization.

• Expand the Pricing training program:• 28 people in the CPP program with PPS. 20 CPP as of February 2012.

• All Account Managers, Regional Sales Managers, Divisional Sales Manager in CPP!

• Created Pricing Module for Sales Reps as part of a 24-month 6-module training program.

• Implement strategic projects:• Training program for distributors and contractors on the dollarization process.

• Conduct internal brainstorming session to quantify the value of our services and other intangibles part of our offering.

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The 5 C Model Applied to ARDEX AmericasCEO

CHAMPIONS

CEO

Specialized ExpertsDiffusion of ExpertiseSupport Price Setting

IncrementalSmall StepsTeam-Wide

CENTER-LED CHANGEARDEX PRICING

TRANSFORMATIONTRANSFORMATION

CONFIDENCE CAPABILITIES

TrainingExperience

ToolsCommunication

CoachingCoachingChampioning

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Step 4: What is Next? (2012-2014)

• Additional focus on training of trade partners.• Intense cultural training for sales force.g• Implementation of LeveragePoint Value-based Pricing to:

• Support all new product and segment launches.

• Handle mutilple stakeholders & complex job sites.

• Document all critical existing products with standard value models.

• Run value-based pricing analytics for Pricing Council• Run value-based pricing analytics for Pricing Council.

• Track ROI more formally.• Train, train...and communicate value.Train, train...and communicate value.

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The Complexity of Value-based Pricing

Architects, Engineers & Specifiersp

Distributor Building Owner

General Contractor

Contractor & Installer

Savings/Productivity Gains/Warranty

Transactional Relationship

Life-time Value/Warranty

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Marketing Relationship

Key Success Factors - Ardex Value Selling

Capabilities to monetize differential value of our benefits & to manage complexityCapabilities to monetize differential value of our benefits & to manage complexity

Strong organizational alignment (Sales, marketing, R&D, technical support, etc)

Strong technological and scientific backbone (ERP, LPI, special apps, webinars)

Customized and targeted communication campaign to support sales force

Advanced internal and external training across the board

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Our Next Webinar – April 18th

Ji G iJim GeismanSoftware Pricing PartnersFounder & PrincipalFounder & Principal

What You Need to Know to Negotiate Better Software Deals

NOTE the time! 1:00pm Eastern

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Thanks for watching!

www ardex comwww.ardex.com

Stephan Liozu, CPP

linkedin.com/in/stephanliozu/ / p

@StephanLiozu

www.leveragepoint.comJay Mansonyjmanson@leveragepoint.com(781) 727 – 5977

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