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Goals for this presentation about pricing analytics 1. To leave you with an understanding or a deeper understanding of the Importance of Pricing & its potential bottom line impact 2. To Show how Pricing & Value analytics 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 For more information : http://privaledge.net
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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
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
• Do’s & Don’t’s
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
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
• Do’s & Don’t’s
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
Page 19
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
Page 20
Page 21
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
Page 24
Measure segment level elasticity
Page 25
Visualise / simulate competitive dynamics
Page 26
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
Page 28
Agenda
• Stakes & Levers
• Framework
• Cases studies
• Do’s & Don’t’s
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