7 steps to quantify a roi from a pricing initiative

7 Steps to quantify a ROI from a pricing initiativeExamples from pricing excellence assessments

COPYRIGHT © SYNCRON INTERNATIONAL AB 2015

Syncron is the global leader in aftermarket service

optimization

• Dealer Management and

Aftermarket Specialist

– Inventory management

– Price management

– Analytics

• Customers are multinational

companies

– Active users in more than 100

countries

– R&D intensive, investing >20% of

revenue

Meet the Presenter:

• 7+ years providing pricing

consulting services to

manufacturing companies

in several industry sectors

• Ph.D. Aftermarket

Solutions, Institute of

Technology at Linköping

University

Johan ÖstlinPricing Presales

Consultant at Syncron


Pricing solutions create ROI with better pricing

and increased customer satisfaction

Main sources of ROI

• Better prices that drive revenue and profit

• Better pricing process that drives operational excellence

• Better customer satisfaction trough logical and explainable pricing

Steps to identify and quantify the potential gains from a pricing solution

• Evaluate current pricing strategies

and pricing methods

• Review current processes for pricing operation

• Perform fact-based data analysis


Step 1 – As is Analysis

Gather the basic data for price strategy analysis

• Item master data (product groups, cost data)

• Sales transaction data (sales orders, rebates, bonuses)

• Current pricing rules

– Segments

– Markets

– Discounts

– Rebates

• Current list prices


Step 2 – As is Analysis

Gather basic data for process and customer complaint analysis

• Current activities performed

(identify main time-consuming

activities)

• Process steps in key activities

(review the process steps)

• Identify missing activities or

information gaps

• Identify frequent customer

complaints


Step 3 – Strategic Assessment on Current List Price Setting

How are the segments formulated today?

Can you redefine:

• What segmentation logics

are applied?

• How are different product

groups formulated?

• What pricing methods are

used?



Select a subscope of segments to review

Accumulated Sales Value

100%

Segmentation Analysis

Main SegmentsSales

Value % MarginItem

NumbersAverage

Sale/Item Value Driver

DefinitionValue Driver

Access Cost

Quality

Potential Method

Inverters 5,2 Good 60 8 667 Good Good Good Value

Feed Screws 4,6 Good 45 10 222 Good Good Good Value

Hydraulic Motors 4,3 Mid. 10 43 000 List prices Good Poor Market

Impellers 3,8 Mid. 80 4 750 Good Good Good Value

Bearings 3,6 Low 200 1 800 List Prices Good Good Market

Filters 3,4 Low 150 2 267 Complex Poor Poor Value

Shafts 3,2 Good 100 3 200 Good Drawing Good Value

PC Boards 3,1 Good 400 775 Complex Poor Good Cost+

Sealing 3 Low 150 2 000 Good Description Poor Value

Segment

• Utilize different KPIs to select what segments to focus on

• Select the pricing method to use

– Evaluation of resources and risk to generate new prices


Sa

les V

alu

e


Develop a new price suggestion

Price Logic

Potential

Price

Diameter

Price

Cost

• Increase Price Quality

Sales

• Identify logical value drivers

• Apply new value drivers on current situation


Price Logic

Potential

Price

Diameter

Price

Cost


Target

Sales

Sa

les V

alu

e





• Create a new price target


Price Logic

Potential

Price

Diameter

Price

Cost


Target

Competitor Price

Competitor Prices

Sales

Sa

les V

alu

e






• Identify potential target level

Relation to product value

Relation to competitors

− Independent market

− Competitor OEM

Relation to target margin

Market accepted level

Negotiated sales level


Price Logic

Potential

Price

Diameter


Price

Cost

Target

Competitor Price

Sales

Sa

les V

alu

e










− Competitor OEM




• Adjust target level


Price Logic








− Competitor OEM




• Adjust target level

• Adjust current prices

Dampened over time

Potential

Price

Diameter


• Capture Price Potential

Price

Cost

Target

Competitor Price

Sales

Sa

les V

alu

e




Step 5 – Strategic Assessment on Market Price Levels

Current market price level in

relation to base price

Current net price (from invoices)

level in relation to base price

• Analyze current

market pricelists for

underperforming

markets

• Analyze invoiced

prices to see average

discounts and net

price levels

• Identify risk of cross-

boarder business

• Push underperformers


Step 6 – Strategic Assessment of Customer Segmentation

for One Market

• Take in key customer data

– Size (of installed base), industry, loyalty, purchasing capabilities,

operational capabilities, order types, number of subsidiaries,

channel type, strategic accounts

– Cost to serve (purchase frequency, average order size, service

need)

• Evaluate key dimensions and develop a customer segmentation

framework

– Statistical significance of customer variables

– Salesforce experience in a heuristic approach



for One Market – Develop a new segmentation

• Customer segmentation needs to be clear and manageable

• Analyze current discount and purchase patterns in the segment

– Discounts in-between customer segments

– Discount spreads in a segment

– Discounts for product groups

Customer Base

End Customers

Food and Processing

Manufacturing

Small Installed

Base

MediumInstalled

Base

LargeInstalled

Base

Buyer is: Professional

Buyers

Buyer is: Service

Technicians

Buyer is:Production Manager

Aerospace

Dealers DistributorsStrategic Accounts

Company A Company B



for One Market – Analysis of discounts in a segment

• Grow margins on customers with low volumes and high discounts by

lowering discounts or consider applying off invoice rebates

• Grow revenue on customers with low volumes and low discounts


Step 7 – Summarize a Business Case

Base on better prices

Business Potential –Revenue Increase

Without Price Elasticity

Low PriceElasticity

Medium Price

Elasticity

High Price

Elasticity

Value-Based Pricing 5% 4.5% 3% 2%

Market-Based Pricing 2% 1.5% 0.5% -0.5%

BoM/KIT Pricing 7% 6.5% 6% 5.5%

German Price Level 3% 2.5% 1.5% 1%

Spain Price Level 2% 1.5% 0.5% 0%

Swiss Price Level -1% 0% 1% 2%

New Customer Segmentation 2.5% 2% 1.5% 1%

Grand Total 7.5% 6% 4% 3%

• For estimations – use simulations on price elasticity sensitivity to rate the

possible benefit in a range

• Extrapolate % figures on to the potential scope to a full project

List

Market

Net


Central Processes

Distribution of Time

Spent

Process Enhancement

Process Improvement

Potential

Estimation on New Time

Requirement

New Item Pricing 25% Automation based on new pricing rules

-50% 12%

Price Revisions 15% Price simulations in analytics

-30% 10%

DiscountNegotiations

10% Guided negotiation support

-20% 8%

Reacting to Cost Changes

8% Automatic notifications with priority order

-50% 4%

Regional Processes

New Item Pricing 15% Central pricing guidance with markup factors

-100% 0%

DiscountNegotiations

60% Price corridors and approval workflow

-25% 45%

• For estimations – summarize current process efforts and process

enhancement possibilities, quantify by FTE gain or new process steps


Base on better prices



Base on better customer satisfaction

Customer Complaints

Distribution of

Complaints

Resolutions Improvement Potential

Estimation on New Customer

Complaints

Similar Items Priced Differently

25% Value-based pricing methodology

-50% 15%

Item Priced Significantly over Market Level

15% Market-based pricing and competitor

feedback process

-25% 11%

Lack of Transparency in Net Price Setting

10% Logical and explainable discount setting, price

corridor negotiation support

-50% 5%

Price Differences in Local Markets

7% Central guidance, market price

comparisons, price corridors

-30% 5%

Grand Total 100% -30% 70%

• For estimations – summarize current most frequent customer complaints and

the resolutions to estimate reduction in complaints


Summary

We have learned the key elements in establishing a ROI from a pricing

initiative trough a stepwise approach:

• Better pricing through price optimization methods

(3% to 7.5% revenue increase)

• Better pricing processes through efficient automation

(23% less time spent)

• Better customer satisfaction through logical and explainable

pricing methods

(30% less price complaints)


Next Steps

• Syncron offers a customized workshop series, “Pricing Excellence Assessment,”

which will take you through the relevant steps and help you to identify and

understand your potential gaps in order to achieve Pricing Excellence.

• For more information, contact:

Peter X. SchreierNorth America1 716 674 [email protected]

Nicole HeinzeNorth and Central Europe46 709 822 [email protected]

Lisa CorbettWest Europe, South Europe & Middle East44 (0) 121 503 [email protected]

mailto:[email protected]



7 steps to quantify a roi from a pricing initiative

Software

good good good value

pricing solutions

pricing methods

current pricing strategies

pricing operation

better pricing process

explainable pricing

current list prices