competing on pricing analytics by privaledge - pricing strategies solutions

Competing on Pricing Analytics

Goals for the session

1. To leave you with an understanding or a deeper understanding of the Importance of effective Pricing Analytics & its potential bottom line impact

Goals for the session

2. To Show some of the more advanced Pricing & Value analytics that could help you measure, manage & improve your pricing effectiveness

3. To show you also some of the limits of analytics & give you a few simple recipes to get more out of them

Agenda

• Stakes & Levers

• Framework

• Cases studies

• Do’s & Don’t’s

The perfect Price

• Is coherent & below ‘perceived value’

• Leaves no money on the table

• Anticipates competitive reaction

• Is fair

• Exceeds costs (and the cost of capital)

• Supports our strategic objectives (Growth/Margin/Profit trade off)

The perfect Value Proposition

• Taylored to segment needs & priorities

• Optimizes the ‘perceived value to cost ratio’

• Provides defendable differentiation

• Can be communicated effectively

• Is coherent with the Brand image & positioning

• Supports group strategy

Pricing analytics - Objectives

Objective: Developing better prices & value propositions…

… and making it happen in the field

PRICING EXCELLENCE Performance Levels

5

Excellence

(<1% of Cos..)

Strategic & integrated

Optimisé

(<10% of Cos..)

Optimized Value & Pricing

Base Valeur (20% of Cos..)

Pricing Base Valeur / Solutions

Sous Contrôle (35-40% of Cos..)

Customer Pricing Alignment & control

Out of control (30% of Cos..)

Weak processes & control , ad-hoc prices

4

3

2

1

Agenda

• Stakes & Levers

• Framework

• Cases studies


Pricing & Value Analytics framework

• Pricing & Value Analytics (P&VA) is the capability to transform customer knowledge, data, into value through an extensive use of scientific methods.

• More precisely, P&VA helps leading companies: – Promise superior & targeted client value propositions

– Deliver on that promise

– Price products to reflect / capture that value

From P&VA to Pricing Strategy

Info Collection •Transactions •Market surveys •Internal surveys •Competitive info •…. Analysis •Margins •Discounts •Value Curves •FVM, Win/Loss •Segmentation •Competitive moves •Benchmark •Performance •….

assemble key info

1

Client Value Intelligence •Value Drivers & ratings •Financial Value Models •Willingness to pay •Value Based Segmentations

Margin Intelligence •Cost Drivers & levels •Product Margins •Segment margins •Fixed / variable

Competitive & Market Intelligence •Market dynamics & cycles •Competitive mapping •Market Fencing / clashes •Competitors strategies

Pricing Intelligence •Key factors for pricing structure •Reaction to past Price changes •Promotional effectiveness •Packages / solutions / …

Get insights & develop business cases, with strong analytics

2

Group Pricing Strategy

•By Market /Brand •Competitive fields •Value Pricing •Price positioning •Pricing guidelines

consensus & support

to implementation

3

Which data ?

Transaction Analysis

Market Research

Customer Feedback

http://www.istockphoto.com/file_closeup/what/technology/computers/792317_binary_code.php?id=792317

Value Curve

Price Waterfall

Discount Toolbox

Price Corridors

On-line Research

Value/Price Segmentation

Pricing Tools

Value based Design

Price Elasticity

Win / Loss Analysis

Simulation Tools

14

Managing Pricing Performance improvement is about 2 things

Pricing Performance

Getting it right

« The price is right »

Client rebates & incentives well

spent

Sustainability

Making it happen

Developing Pricing

capabilities

Diagnostic

Quick Wins

Pricing & Value Analytics framework Key Take aways

• 4 key angles to the analytics – Client Intelligence – Competitive Intelligence – Margin Intelligence – Pricing Intelligence

• Many Sources & Many tools…..

…. Use them appropriately

• Get results now (Quick wins)…..

…. But manage your pricing capabilities for the long term (sustainability)

Agenda

• Stakes & Levers

• Framework

• Cases study


Management of conditions at client level show a large potential for improvement

Lack of control &

discipline

Large accounts

put at risk by

unfair treatment

Large discounts given

to small accounts

/ not taken away from

reduced

Quick Wins: Pricing actions for short term profit impact

Pocket prices reflect average discounts of up to 40% depending on the region

Discretionary discounts vary from 2 to 11% between AM!!

Before

Waterfall management at regional level was clearly an Issue

The treatment of exception must also be tightened ….

At lirst levels, over 70% of escalated ‘exceptions’ were approved

Huge work required just to examine ‘escalated exceptions’

Synthetic Business case Improvement management of Client Conditions

Business Case Insights

∆Top Line

(€)

∆ Bottom

Line (€)

Assumptions

1. Stricter &

clearer

guidelines for

client conditions

Most Sales rep not fully aware of

guidelines or applying obsolete ones

No organized communication &

discussions of changes

2.0 M€ 1.5 M€ • Porfolio fit

• Channel willingness

• Other factors stable

2. Strict &

Controlled

Exceptions

Management

System

-24% of deals are “exceptions”

-At each level, a minimum of 70% of

exceptions are approved

-Up to 30% of Sales rep time spent in

Internal negociations & Exceptions Admin

4.0 M€ 3.0 M€

- Exceptions reduced to <5% of deals

- Average price realization improved

by 4%

- 2% Lost Volumes

3. Increase

Rebales 20% &

reduce

discounts by

same amount

- Higher rebates for a Given total

(rebates + discounts) results in

significantly higher SoA performance

6.0 M€ 5.0 M€ • Porfolio fit

• Adjusted client level volume

objectives

• Channel willingness

• Other factors stable

Business Impact

Case Studies

Understand & quantify Value Drivers

Measure segment level elasticity

Visualise / simulate competitive dynamics

Pricing Analytics case studies Key Take aways

• Whatever your current level of performance, Pricing analytics can help – Identify & prioritize opportunities – Develop consensus around required changes – Support in-field implementation of the strategy – Control & monitor implementation – Sustain the level of performance

• Pricing & value analytics is about …. Control & monitoring, measuring value, but also helping you develop your pricing capabilities

• Powerful, focused tools such as PriValEdge’s ‘Valumizer’ can make a bid difference in your ability to use analytics to support decisions

• It takes its full meaning as part of a change management effort…

• Data visibility

• Granularity

• Ability to compare

Agenda

• Stakes & Levers

• Framework

• Cases studies


Decision Support

Insights

Data

Information

From Data to Decision Support

• Through an extensive use of methods, Pricing analytics become a key

competitive weapon for world class pricers.

•Develop strong insights

•Build Business cases

•Achieve consensus on required actions

•Pragmatically prioritize Value / Pricing initiatives •To Potential Impact

•To strategic objectives

•To Client acquisition & lifetime value

•Use systems & analytics to support & guide implementation

Pricing & Value Analytics Final take aways

• Difficult to make it all happen without a dedicated Pricing Management function – Not that sophisticated but still requires expertise

– Change management requires a leader / owner

– Link between the 3 Stakeholders (Marketing, Finance, Sales)

• Data … Information … Insights…Decision support…..

…. Don’t get lost in the early stages

• It will take a while…

…. But support & determination can speed things up

Pricing Excellence

…. It’s a journey