biz mkt presentation

8/8/2019 BIZ MKT Presentation

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01

Pricing

Strategy forBiz MarketsCase Analysis Price Like a Retailer, Not a Widget MarketPresented by

Victor Lee, Grace Lee, Nelson Leong Kin Yit, Sophia Lian


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01Parker Hannifin Corporation (NYSE: PH) -

manufacturer of motion and control technologies. Founded in 1918; publicly traded on the NYSE

since December 9, 1964.

One of the largest companies in the world in motion

control technology and employs around 39,873people.

As of 2010, Company ranked 230 in the Fortune

500.

introduction


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Fluid Connectors Instrumentation Filtration HydraulicsAutomation

Climate & Industrial Controls Sealing and ShieldingAerospace

Parker - divided into EIGHT

technology groups.


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Manufacturer of motion control products,

including fluid power systems,

electromechanical controls and related

components.

It makes components used in everything

from the space shuttle to a mechanism thathelped tilt a faux steamship for the movie

"Titanic."


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02DESCRIBE THE PROCESS IN PERFORMINGDESCRIBE THE PROCESS IN PERFORMING

AN AUDIT OF THE FIRM]S PRODUCTAN AUDIT OF THE FIRM]S PRODUCT

LINE TO IDENTIFY THE BEST ANDLINE TO IDENTIFY THE BEST AND

WORST PRODUCTS FOR PROFITWORST PRODUCTS FOR PROFIT--MARGINMARGIN

EXPANSION.EXPANSION.

question one


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Profit Margin Expansion

In long-term reference, a measure of acompany's net profit margin in the

latest reported quarter divided by profit

margin in the fiscal year


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PARKERS STRATEGY


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We can't price them

just off the cost. We

have to price them off

of the value to the

customer and

competitive levels on

the marketplaceDonald E. WashkewiczDonald E. Washkewicz


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Know the PriceKnow the Price--Setting DecisionSetting Decision

Process :Process :

Set Strategic Pricing ObjectivesSet Strategic Pricing Objectives

Estimate Demand and the Price Elasticity of DemandEstimate Demand and the Price Elasticity of DemandEstimate Demand and the Price Elasticity of DemandEstimate Demand and the Price Elasticity of Demand

Determine Costs and their Relationship to VolumeDetermine Costs and their Relationship to Volume

Examine Competitors Prices and StrategiesExamine Competitors Prices and Strategies

Set the Price LevelSet the Price Level


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Set Strategic Pricing ObjectivesSet Strategic Pricing Objectives

Achieve market share from 14 % to20%

Price product at the best value. No. 1 motion control company

everywhere in the world


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Estimate Demand and PriceEstimate Demand and Price

Elasticity of DemandElasticity of Demand

How do organizational buyersvalue the product?

Economic value

Cost saving/revenue gain

Commodity value

Value that customer assign to

product feature

Differentiation value

Unique from competitors


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Product Category Explanation

1. Core products Commodity-type products in a highly

competitive market

2. Partially differentiated group A Some differentiation adds value for

customer

3. Partially differentiated group B Niche products with no exact

competitive matches

4. Differentiated products or

systems

Highly engineered solutions

5. Specials and classics Custom-designed products or one-

of-a-kinds


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Costs & their Relationship to Vol.Costs & their Relationship to Vol.

Cost implications:

Proportion of product cost

Variation of cost at different level

Economies of scale


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Problem

$3 billion a year on materialsand services but no one triesto add up and order from oneperson.

Solution Strategic purchasing program

Reduced number of suppliers,

and collaborates more closelywith them on productdevelopment to save money

ABC approach


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Examine Competitors Prices

and Strategies & Set Price

Level Price can make a differential

advantage over competitors. Hypercompetitive rivalries:

Parker has competitors in eachproduct category

Crane, Eaton, HoneywellInternational, IMI, Invensys,Kaydon and Watts WaterTechnologies


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Product Category Explanation Price Adjustment

1. Core products Commodity-type productsin a highly competitive

market

Aligned prices withmarket. Changes were -3%

to +5%.

2. Partially differentiatedgroup A

Some differentiation addsvalue for customer

Increased prices upto 5%

3. Partially differentiatedgroup B

Niche products with noexact competitive matches

Increased prices upto 5%

4. Differentiated products

or systems

Highly engineered

solutions

Increased upto 25%

5. Specials and classics Custom-designed productsor one-of-a-kinds

Increased over 25%


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Provide a set of specific pricing guidelines

that managers should apply as the

traditional cost-plus approach is phased

out and a value-based approach to pricingis implemented.

03Question two


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Cost-plus Pricing

This type of pricing includes the variable

costs associated with the goods, as well

as a portion of the fixed costs of operating

the business.

(average variable cost + % allocation of

fixed costs)(1+ mark up%).


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Value-based Pricing

It sets selling prices on the perceived

value to the customer, rather than on the

actual cost of the product, the market

price, competitors prices, or the historical

price.

The goal of value-based pricing is to align

price with value delivered. Price for anyindividual customer can be customized to

reflect the specific value delivered.


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Cost-plus vs Value-basedCost plus

suited to businesses that

deal with large

volumes/which operate in

markets dominated by

competition on price.

ignores your image and

market positioning. And

hidden costs are easily

forgotten, so your true profitper sale is often lower than

you realise.

Value-based focuses on the pricecustomers are willing to pay,based on the benefits yourbusiness offers them.

depends on the strength of thebenefits you can provide tocustomers.

charge according to the valueyou offer customers.

it can alienate potentialcustomers who are driven onlyby price and can also draw innew competitors.


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Value-Based Approach

Define the key market segments

Isolate the most significant drivers of value incustomers business

Quantify the impact of your product/service,particularly for those features that are uniqueand different from competitors offering

Develop pricing strategy and marketing plan


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Step1

Parker Hannifin Corporation market segment

- original equipment manufacturers (OEMs)- replacement markets in various manufacturing and processindustries

Step2

Customer interview - identify and measure value

Value driver(power generation technology)

Cost drivers

- create value by economic savings Revenue drivers

- add incremental value by facilitating revenue or marginexpansion.


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Step 3

Impact

- Quantify the impact of the product or service on each value

driver in customers business

(e.g. Lower installed and life-cycle costs for water injection)

Step 4

Comparison

- estimate the incremental value

- isolate features that are unique and different from competitors

(e.g. parker store perform fittings, pumps and walk-up repairs)


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When a new CEO took over Parker Hannifin Corp.,

- 1/3 of Parker's parts offering unique customer value were

priced on a cost-plus basis- parts that are custom-engineered for their customers which

should have commanded premium prices.

Introduction of value-based pricing resulted in- invested capital from 7% in 2002 to 21% in 2006

- per share value by 88% compared with a 25% gain in the S&P

500.

Value-based pricing certainly means that prices of items with

unique features should go up to match customer value, but it

also may mean that prices of less competitive items should go

down to maintain or expand market shares.


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THEENDThank you forlistening

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