Pricing In Economic Downturn Francois Delvaux
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Presentation1 – Draft – Pricing in times of economic crisis Pricing in times of economic crisis February 25th, 2009 Vlerick Alumni Event
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proactive pricing in times of economic downturn
Transcript of Pricing In Economic Downturn Francois Delvaux
- 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
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- Market assessments and finding growth opportunities
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- Segmentation and positioning strategy
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- Pricing opportunity assessment and design of pricing strategy
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- Employer branding strategy
- Building and activating the go-to-market strategies
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- Implementing go to market strategies across 4 Ps
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- 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
- Good execution of strategy and sound business decisions
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- Customer Life Time Value Management
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- Return on Marketing Investments or assets (ROMI/ROMA)
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- 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.
- 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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- Todays environment
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- Common Pitfalls of Pricing
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- Proactive Pricing in Down Turn
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- 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
- 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
- 7. Objective
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- Todays environment
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- Common Pitfalls of Pricing
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- Proactive Pricing in Down Turn
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- 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
- 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
- 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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- Todays environment
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- Common Pitfalls of Pricing
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- Proactive Pricing in Down Turn
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- 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
- Adapt offer to grow among different targets
- Change aspects of cost or value to profitably serve target
- Have good controls on discounts and incentives
- Ensure when you flex done proactively & organization disciplined
- Make choices on which customers to invest in
- Wisely allocate your scare resources and have real partners
- Prepare organization and make price adjustments
- Enable organization to implement price changes in market
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- 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
- Reinforce the value you provide in the market
- Prevent your value to become commoditized
- 16. Goal: Frame the reference
- Reinforce the value you provide in the market
- Prevent your value to become commoditized
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- Adapt offer to grow among different targets
- Change aspects of cost or value to profitably serve target
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- Adapt offer to grow among different targets
- Change aspects of cost or value to profitably serve target
- 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
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- Adapt offer to grow among different targets
- Change aspects of cost or value to profitably serve target
- 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
- Have good controls on discounts and incentives
- Ensure when you flex done proactively & organization disciplined
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- 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
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- The List Price net of all known adjustments (discounts etc)
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- The actual revenues realized
- Have good controls on discounts and incentives
- Ensure when you flex done proactively & organization disciplined
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- Make choices on which customers to invest in
- Wisely allocate your scare resources and have real partners
- 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
- 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
- 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
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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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- Segment based pricing
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- Price menu development
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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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- Developing prices menus
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- Coaching sales teams to sell value proposition
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- New product pricing
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- Changing pricing metrics
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- Enhancing value selling activities
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- License based pricing
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- 26. How to get in contact:
- Pricing and Value Management
- Franois Delvaux
- Mobile +32 (0)495 24 29 86
- E-Mail [email_address]