Power Pricing. Proven strategies for sustainable sales success. Beograd, 19. May Dr. Thomas Haller Managing Partner

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1 Power Pricing Proven strategies for sustainable sales success Beograd, 19. May 2016 Dr. Thomas Haller Managing Partner Vienna office Schubertring 14/Top 5. OG 1010 Vienna, Austria Tel Thomas.Haller@simon-kucher.com

2 Simon-Kucher & Partners at a glance Best consultancy in marketing and sales manager magazin Marketing and sales Marketing and pricing Sales and CRM Simon-Kucher & Partners Boston Consulting Group McKinsey & Company Source: manager magazin survey of top managers in Germany, August 2007 and 2011/IMB brand eins Thema Simon-Kucher & Partners Boston Consulting Group McKinsey & Company. Simon-Kucher & Partners Boston Consulting Group. McKinsey & Company Source: brand eins Thema/Statista survey of approx. 1,500 partners and project leaders from consulting firms and approx. 1,500 C-level managers from German companies, May 2014 and 2015 World leader in pricing World leader in giving advice to companies on how to price their products BusinessWeek Pricing strategy specialists The Wall Street Journal The world s leading pricing consultancy The Economist In pricing you offer something nobody else does Professor Peter Drucker Global presence >3,000 projects in the last 3 years 32 offices worldwide, 900 employees, 209m revenue in 2015 Amsterdam Atlanta Barcelona Beijing Bonn Boston Brussels Cologne Copenhagen Dubai Frankfurt Geneva Hamburg Istanbul London Luxembourg Madrid Milan Mountain View Munich New York Paris San Francisco Santiago de Chile São Paulo Singapore Sydney Tokyo Toronto Vienna Warsaw Zurich Strategy Sales Marketing Pricing Growth and competitive strategies Product portfolio (re-)design Pricing excellence Customer relationship and customer value management Sales strategies and sales channel optimization 2

3 There s not much in the world we haven t priced Porsche Price strategy and Pricing for models like Cayenne / Cayman / Panamera Adidas Price architecture and retail pricing Google Pricing Opportunity Check Brown-Foreman Pricing strategy for Jack Daniels and other brands Bayer Launch of Levitra (competitive product to Pfizer's Viagra) ebay Revenue model optimization for professional merchants Philips Global consumer pricing Source: Simon-Kucher 3

4 Pricing: What is it all about? I would have stayed for two thousand. I would have paid four. In essence it is all about capturing the willingness to pay! In this case we clearly see some room for improvement! 4

5 Why is pricing so important? Example A 10% improvement in leads to a profit increase of... Profit driver Profit Old New Old New Fixed costs 30m 27m 10m 13m 30% Sales volume 1m 1,1m 10m 14m 40% Variable unit cost m 16m 60% Price m 20m 100% To be read as follows: A 10% increase in price brings the price up to $110. All else remaining unchanged, this increases profit by 100% to $20 million. Source: Simon-Kucher 5

6 Asus example Millions of euros "left on the table"! Asus EEE " only 10% of orders can be fulfilled" Jan

7 Key findings of the Simon-Kucher Global Pricing Study 1) 83% of companies experience growing price pressure 58% of companies are in a price war 37% rate of target price implementation the lowest recorded rate ever 1) Global Pricing Study; 1,615 companies across the world; 39% C-level executives Source: Simon-Kucher 7

8 Key findings of the Simon-Kucher Global Pricing Study 1) 77% of companies see new product innovation as the best possible way to escape price pressure BUT 72% of these products miss their profit targets 25% of companies don t have a single new product that achieved its profit target 1) Global Pricing Study; 1,615 companies across the world; 39% C-level executives Source: Simon-Kucher 8

9 Organization of Systematic Pricing Process Where you have active price management, a welldefined pricing process, clear rules of price setting and explicit responsibilities for price implementation and control, margins can be significantly and sustainably increased. If you delegate pricing or, the worst case, leave it to the market you will not rise above mediocrity. Albert Baehny CEO, Geberit Source: Handelblatt

10 Geberit EBIT margin 27.5%, turnover 2.2 bn CHF, Market capitalization 12.6 bn CHF CHF 350 CHF 300 CHF 250 CHF 200 CHF 150 CHF 100 CHF Source: 10

11 Price Strategy and The Art of Price Setting 11

12 Price strategy The first step is to understand the objectives of your product and its "strategic positioning"! Clients Needs/Perception "Strategic Triangle" You Competitors Competitive Advantage Source: Simon-Kucher 12

13 Price setting The problem with cost-plus pricing: Divorced from customer reality Example: Metallic paint Project Example Ø Willingness-to-pay USD 850 Untapped profit potential Ø costs USD 25 Target margin Costs Price charged Cost plus pricing Value based pricing Source: Simon-Kucher 13

14 Price setting Power Pricing: Base your pricing on the value you are delivering 1 st step: Define the value of your product A customer will make a purchase if the left side is at least as big as right side 2 nd step: Capture value with pricing Value Value to the customer Cost/price "Customer sacrifice" Source: Simon-Kucher 14

15 Price setting There are typically 3-6 value drivers with a direct impact on product value Project Example Additional value (Fairtrade) Type of packaging Brand Cocoa type Cocoa-% Packaging size Source: Simon-Kucher 15

16 Price setting Example: Different types of packaging have different value from consumers perspective Project Example Plastic wrap Transparent wrap Cardboard Cardboard with transparent window Special packaging +15% +11% +5% +7% Willingness to pay Source: Simon-Kucher 16

17 Price setting BUT... Value drivers are not preference drivers! vs. vs. Preference drivers Have an influence on the purchase decision Are not reflected in consumers willingness to pay Cannot be changed/ manipulated with price Source: Simon-Kucher 17

18 Price setting Ensure consistent pricing within product portfolio with "price trees" Value driver Potential Project Example Type of packaging Attributes of each value driver Cardboard with window Brand Weigth RRP actual Competitor EUR Index 250g % Competitor A, B Brand C 100g % Competitor A RRP competition Brand A 100g % Competitor A 1.99 Chocolate Cardboard Brand B 250g 100g % 201% Competitor A, B Competitor A Potential Competitor A 0.79 Plastic wrap Brand B 100g % Competitor A 0.59 Reference product Source: Simon-Kucher *RRP = Recommended retail price Reference product (used as relative index for other products) 18

19 Price setting Smart product assortment pricing can significantly influence purchase decisions Assortment and price optimization Project Example Two offers Customers choose the entry product Three offers Customers switch Purchasing decisions often depend on product assortment structure Source: Simon-Kucher 19

20 Price setting Steer buying behavior through anchoring and (un)bundling Option Online Print + online Average revenue per subscriber Price $59 $125 $80.12 Option 1 Option 2 % of people choosing option Price % of people choosing option $59 16% Print $125 0% Print + online $125 84% 68% 32% Option Online Average revenue per subscriber $ Source: Simon-Kucher 20

21 Price setting Effectively monetize product innovations Old model Tire manufacturer New model Solution provider: "Keep your truck rolling" Price/tire Price/km (trucker's cost aligned with revenue basis) Higher price for better value almost impossible "Automatically" higher price for better value (duration) 21

22 Price setting Get the price model in place first, and then optimize! 2006: price for 20kg = : price for 20kg =

23 Summary Price is the strongest profit lever Effective pricing starts with a clear strategy Don t rely on a cost-plus approach, but base your pricing on the value you are delivering Extract full profit potential by introducing innovative pricing approaches 23

24 Five steps for increasing your power in pricing 1 give clear strategic directions (incl. targets, pricing guidelines), create profit culture 2 ask for explicit price strategies for each business unit 3 put "price performance" as a topic on each board meeting agenda and ask for a set of meaningful pricing KPIs 4 spend two hours a month to look into a specific pricing topic (contracts, deals, T&Cs etc.) 5 install a pricing organization, which fits to the company's challenges and culture 24

25 "The single most important decision in evaluating a business is pricing power!" Warren Buffett 25

26 Thank you! Your contact for additional questions: Dr. Thomas Haller Managing Partner Schubertring 14/ Top 5. OG 1010 Vienna Austria Tel: Mobile: Thomas.Haller@simon-kucher.com Vienna office Schubertring 14/Top 5. OG 1010 Vienna, Austria Tel Amsterdam Atlanta Barcelona Beijing Bonn Boston Brussels Cologne Copenhagen Dubai Frankfurt Istanbul London Luxembourg Madrid Milan Munich New York Paris San Francisco Santiago de Chile São Paulo Singapore Sydney Tokyo Toronto Vienna Warsaw Zurich

27 Backup Global Pricing Study set-up and methodology Methodology Online survey 32 questions on business environment, pricing practices, and pricing performance Timing Respondents May/June 2014 Over 40 countries, mainly from Europe, the Americas and Asia From all major industries 39% C-level executives, 48% middle management Simon-Kucher & Partners clients and members of the independent Professional Pricing Society (PPS) Sample size 1,615 valid responses Source: Global Pricing Study

28 Backup Geographic and industry distribution Over 40 countries From all major industries Industries % of total** Consumer goods & retail 12% Banking and financial services 12% Building/construction 10% Machinery 7% Automotive 6% Wholesale & distribution 6% Chemicals 5% Medical technologies 5% Telecommunication, media, e-commerce 4% Transport and logistics 3% Electronics 3% Travel and hospitality 3% Industrial services 3% Software 2% Base materials 2% Energy and utilities 2% * Includes respondents with regional or global responsibilities ** does not include "other" Source: Global Pricing Study

29 Backup Profile of respondents and their companies Management position in the wholesale & distribution company Company revenue in $m Others 13% Middle management 43% Top management (C-level) 44% >= 1, to 1, to < to < to < to <50 15% 18% 6% 12% 12% 27% <10 11% Source: Global Pricing Study 2014, Wholesalers and distributors only 29