Pricingineconomicdownturn Francois Delvaux 123594482937 Phpapp02

Pricing in Times of Economic Downturn February, 2009 Francois Delvaux Director, The House of Marketing

Introduction: The House of Marketing’s pricing practice team collaborates with companies to grow their top and bottom line and build value management capabilities ,[object Object],[object Object],[object Object],[object Object],[object Object],I. Strategic Marketing II. Go-to-Market III. Organization capabilities ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],IV. Performance Management ,[object Object],[object Object],[object Object],[object Object]

How We Help Companies Improve Its Profitability ,[object Object],[object Object],[object Object],Diagnostic / find money Strategy Support Activate Strategy Enhance Capabilities ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Objective ,[object Object],[object Object],[object Object]

Pricing in The News ,[object Object],[object Object],[object Object],[object Object],Increasing price Delhaize launches concept “low cost” store red market 21/01/2009, De Tijd Danone launches discount range of yoghurt 12/09/2008, Le Figaro Punch management will work four fifths 10/02/2009, De Standaard VW stops its production for a week 23/02/2009 * Note: Common reasons given are increased costs of raw materials and other resources, reduced sales and large inflation Lowering price or price image Cutting Costs $ $

THOM Pricing Survey: Pricing is top of mind & perceived as difficult to change in market ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Source: THOM Pricing Survey 2009 – preliminary results of 700 participants

Common Pitfall: “Our price levels is the root cause of our problems… Price Level … and is, therefore, the only way to overcome it.”

Is this your company? PITFALLS LIKELY OUTCOMES Creating higher (or unrealistic) goals for the direct or indirect sales teams Defending prices by offering free value-added services Offering better price to customers who ask for a lower price ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],1 2 3

Is this your company? Discounting a high-value offering to attract the price sensitive customers Systematic lowering of prices in market to boost sales volume Price levels based mainly on costs and adjusting price when cost changes ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],4 5 6 PITFALLS LIKELY OUTCOMES

Putting everything together, pricing’s success in reality depends on many elements … Reality: Pricing is only the tip of the iceberg, Price Level And many elements are part of pricing’s success Value Communication Price and Offer Structure Value Creation Pricing Policy Organizational Alignment + Sound Value & Price Management

Your Chess board… Price Paid Value Received high low low medium high medium Price relative to Value C Missed Opportunities B Unharvested Value A

Proactive pricing activities you can do in times of economic downturn ,[object Object],[object Object],1 ,[object Object],[object Object],2 ,[object Object],[object Object],3 ,[object Object],[object Object],4 ,[object Object],[object Object],5

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Reference Value € 0,85 / kg Next best competitive Alternative internal mixing costs Less Defective € 0,08 Less WIP Scrap € 0,07 Your positive differentiation Less Freight € 0,03 Fewer Material Rejection € 0,05 Goal: Sell on value not on price ,[object Object],[object Object],1

Goal: Frame the reference ,[object Object],[object Object],1

[object Object],[object Object],2 High Low Received Value Segment and Size A B C D Setting price here … leaves money on the table and communicates that value does not have to be paid for… 1 2 … .and misses volume growth opportunities by over pricing these customers out of the market 3

[object Object],[object Object],2 ,[object Object],[object Object],[object Object],[object Object],[object Object],INDEPENDENT CHOICE ACTIVE CHOICE PROFESSIONAL CHOICE PRICING ORDERING FULFILLMENT HANDLING FEE FREIGHT PRE-SALES TECH SUPPORT POST SALES TECH SUPPORT FINANCING SALES SUPPORT Must order on - line Can use any method of ordering Can use any method of ordering Within two business days Within one business day Same day For orders less than € 1000 For orders less than € 500 For orders less than € 100 All freight expenses charged Free freight for orders more than € 2000* Free freight for orders more than € 1500* Not Included Requires minimum purchase of € 50k per quarter Requires minimum purchase of € 30k per quarter Not Included Not Included Requires minimum purchase of € 30k per quarter 10 - day net terms 30 - day net terms 30 day net terms Available for complex orders only Available for placement pricing, availability, and order verification Available for placement pricing, availability, and order verification Receive most aggressive pricing Receive aggressive pricing Receive less aggressive pricing

[object Object],[object Object],2 ,[object Object],[object Object],[object Object],[object Object],[object Object]

% Off list prices Volume Example of unwarranted variance ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Goal: Address unwarranted variance and have proactive policies to drive desired behaviors ,[object Object],[object Object],3

[object Object],[object Object],[object Object],Pocket Price ,[object Object],[object Object],Price (Euros) ,[object Object],[object Object],3

[object Object],[object Object],4 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Price Product Cost Service Costs Price levels & policies that discourages costly behaviors Price structure that aligns price with value & cost-to-serve cost Goal: Pricing, policies and structure that protects or discourages costly behaviors Goal: Manage behaviors Price

High VC: Low CM High FC: High CM Opportunity cost: CM foregone Drive Price Drive Volume Capacity Optimization Cost Type Strategic Objective ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],5

Take your own “pricing in downturn” diagnostic ,[object Object],[object Object],[object Object],[object Object],[object Object]

Sample sectors we focus on when it comes to pricing and value management Logistics and distribution Financial Medical equipment Software and ICT ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Examples of interventions

How to get in contact: ,[object Object],[object Object],[object Object],[object Object],The House of Marketing Schuttersvest 75 B-2800 Mechelen Belgium Office +32 (0)15 45 05 50 Fax +32 (0)15 45 05 51 www.thom.eu www.mingle.be

Pricingineconomicdownturn Francois Delvaux 123594482937 Phpapp02

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