Whirlpool Europe - achieving high performance with an innovative, customer-centric approach to spare parts pricing

Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances, including the brand names of Whirlpool, Maytag, KitchenAid, Jenn-Air and Amana. In 2009, the company employed 67,000 people worldwide and reported sales of approximately $17 billion. Whirlpool Europe is a subsidiary of the Whirlpool Corporation and present in all EU Member states. European sales accounted for 19 percent of the parent company’s 2009 revenues.

Summary

Accenture is helping Whirlpool Europe improve its performance with an innovative, centralized and customer-centric approach to spare parts pricing. The solution, which leverages the Accenture Parts Optimization offering, aligns the price of spare parts to customers’ perceived value of those parts. As a result, customers find the pricing to be more fair and the overall service experience to be more satisfying. Customers aren’t the only ones

benefiting from optimized pricing. When the solution is completely deployed, Whirlpool expects to see more than a 13 percent boost to profitability in its spare parts business.

Business Challenge

Like other businesses operating in the highly competitive appliance sector, Whirlpool Europe was under intense pressure to cut costs and boost profitability. To achieve this dual imperative, the company turned to an area of business that is often overlooked by “white goods” manufacturers: spare parts.

While Whirlpool’s spare parts business accounted for only a small percentage of its overall revenue, it generated high margins. The company believed, therefore, that spare parts pricing was integral to long-term profitability. Importantly, Whirlpool Europe also recognized that the pricing of its spare parts, along with the quality of its after-sales services, were important components of a differentiated, satisfying customer experience. By improving its spare part and after-sales capabilities, the company was confident it could generate greater brand loyalty by providing better, more valuable service for its customers in the after-sales market.

Specifically, Whirlpool Europe wanted to revamp its after-sales business by:

•Replacing its traditional “cost-plus” pricing model for spare parts with a consumer-centric approach that aligned prices with customers’ perceived value.

•Centralizing its new pricing model across its European operations to ensure consistency in pricing and optimized customer value.

For help in implementing the transformation—dubbed OP3 for Optimal Parts Price Positioning—Whirlpool Europe turned to Accenture. In addition to its extensive experience in redesigning pricing operating models for consumer goods companies in Europe, Accenture’s previous work with Whirlpool

had consistently demonstrated its commitment to helping the appliance leader achieve high performance.

How Accenture Helped

Accenture knew that Whirlpool was focused, above all, on improving the lives of its consumers. For that reason, any program to improve financial performance needed to also deliver clear value to Whirlpool’s customers, enhance brand credibility, and strengthen the product and service quality upon which Whirlpool’s customers had come to rely. The proven Accenture Parts Optimization (APO) solution, which underpinned Whirlpool’s OP3 program, aimed to do just that.

Drawing on Accenture’s industry experience and industrialized approach to solution delivery, the APO solution aligns the price of spare parts to “customer-perceived value.” This is a radical departure from the traditional cost-plus pricing method used by Whirlpool and most other consumer durable goods companies. Under the old method of pricing, Whirlpool decided price levels by adding a mark-up percentage to the purchase cost of parts. In that scenario, some spare parts were underpriced, which led to margin erosion. Others were over-priced and threatened to damage the credibility of the Whirlpool brand. The APO solution was designed to help Whirlpool take the guesswork out of spare parts pricing and, in the process, improve profitability and customer value.

Accenture professionals with deep skills in customer relationship management and pricing strategy worked closely with Whirlpool Europe to deploy the new spare parts pricing capability. The effort involved:

•Establishinganagiledeliverymodel. Accenture applied a two-pronged approach to delivering the pricing transformation. One team, located at the client site, tapped Accenture’s industry experience to support the development of Whirlpool’s new pricing logic and to assist with the

European transition to the new model of pricing. Another team, based in APO service location, managed the industrialized Accenture Parts Optimization engine and assumed responsibility for analyzing all spare parts, defining new families of parts and suggesting new prices. In determining the optimal price positioning, the team took a number of factors into account, including the customers’ perception of price, total repair cost, repair cost versus finished good value, and specific attributes of the spare parts.

•Rollingoutthenewcapability. To maintain momentum and to pace the rollout to deliver an optimal return on investment, the team established a three-phase deployment approach. In Phase One, which ended December 2010, the team focused on optimizing the pricing of 3,000 spare parts that, combined, accounted for 70 percent of spare part sales. Phases Two and Three, to be completed in December 2011 and 2012, respectively, will extend the new pricing model to 12,000 additional spare parts.

•CentralizingthenewpricingoperatingmodelacrossWhirlpool’sEuropeanoperations. Prior to the transformation, Whirlpool employed a multi-pricing logic in which each country defined baseline purchase prices and markups. Accenture is providing change management support—focused mainly on training and communications programs—to help Whirlpool transition its after-sales pricing from a country-based to a centralized European-based pricing operating model. This effort, driven by a strong business case for efficiency gains, involves defining common European pricing for all markets.

High Performance Delivered Accenture’s ongoing research and client experiences have revealed that the ability to help customers get maximum value from products and keep them running at peak performance has become a major source of differentiation

and profit. The optimal pricing of spare parts is a critical component of perceived value and keeps customers satisfied and reluctant to switch brands.

With Accenture’s help, Whirlpool Europe has established a one-of-a-kind spare parts pricing model that:

• Eliminates pricing complexity and inefficiency.

• Improves the perceived value of spare parts provided to customers, thereby creating greater customer satisfaction and brand loyalty.

• Is expected to increase the profitability of Whirlpool’s spare parts business by approximately $13.4 million by the time the transformation is complete in 2012. Each month, the profitability gain is compared to the fixed base line. Key metrics monitored on a weekly basis include the quantity of spare parts sold, the discount applied by each market and the gross price applied.

• Improves Whirlpool’s image in the marketplace by providing a coherent, homogenous and consistent set of prices for parts within the same product family, among families of similar parts and across Whirlpool’s European operations.

In short, the OP3 program has introduced a new pricing structure that allows Whirlpool to bolster its bottom line, better serve its customers throughout the product lifecycle, and chart a course for high performance.

Assets•Accenture Parts Optimization

Technologies•Accenture Parts Optimization solution

(formerly known as Partneo)

About Accenture

Accenture is a global management consulting, technology services and outsourcing company, with approximately 215,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.6 billion for the fiscal year ended Aug. 31, 2010. Its home page is www.accenture.com.

“Accenture has helped us implement a state-of-the-art pricing optimization program for our spare parts business across Europe. Customers perceive greater value with the new pricing model, which translates into customer loyalty and satisfaction. Additionally, we are streamlining and harmonizing our pricing, across all European Countries”

– Luca Marcheselli, Director of profit pools development, Whirlpool Europe

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