ACC Value Selling Seminar · • Value Based Pricing and Selling • Different pricing models •...
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May 2013 ACC – Value Selling Seminar How to grow your profit margin?
Transcript of ACC Value Selling Seminar · • Value Based Pricing and Selling • Different pricing models •...
May 2013
ACC – Value Selling Seminar How to grow your profit margin?
Our Purpose
Our purpose is to highlight the added value of the Belgian communication agencies in order to enable them to grow business in a
respectable way
© 2013 Deloitte Belgium
ACC - Value Selling Agenda 28/05
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Topic Description Timing
Start End
Welcome • Sandwich lunch 12:00 13:00
Introduction
• Context
• Evolution of profitability challenges in advertising industry
• Pricing: the most important lever of profitability
• Goals of today’s session
13:00 13:20
Know what you sell • Innovative business models in advertising: concepts & cases
• Team exercise: potential innovative business models in your industry 13:20 14:30
Break • Networking, emails, coffee
Bill for what you sell
• Value Based Pricing and Selling
• Different pricing models
• Price execution as important as price setting
• Team exercise: potential new pricing options in your industry
15:00 16:30
Break • Networking, emails, coffee
Know to whom you sell • Understand the Decision Making Units (DMU) during negotiations.
E.g. the role of procurement
• Asking the right questions during negotiations 17:00 19:00
Closing reception • Snack, drink, networking 19:00 20:00
© 2013 Deloitte Belgium
Context Margin of advertising industry in Belgium under pressure
4 Source: ACC Profitability Study 2011 by Deloitte (period 2007 – 2010)
2030405060708090
2007 2008 2009 2010
Gro
ss m
argi
n (m
io €
)
National
International
Gross margin of international agencies is declining whereas gross margin of national agencies has been quite stable over the years
With international agencies we see a clear trend of decreasing payroll costs and reducing # FTE’s. However FTE’s are declining faster than payroll costs which means a higher average payroll cost per FTE
For National agencies both payroll costs and # FTE’s are still increasing
80
90
100
110
120
2007 2008 2009 2010
Aver
age
payr
oll c
osts
(in
%)
National
International
80
90
100
110
120
2007 2008 2009 2010
# FT
E's
(in %
)
National
International
65
70
75
80
2007 2008 2009 2010
Ratio
per
sonn
el c
ost/
gros
s m
argi
n
National
International
International agencies are controlling their personnel costs / gross margin ratio whereas this keeps growing for national agencies
In 4 years time national agencies have gone from a ratio of 68% (4% below international average) to a ratio of 77% (1% above international average)
Gross margin
Average pay roll costs (in %)
# FTE’s (in %)
Ratio : personnel cost/ gross margin
© 2013 Deloitte Belgium
Context Profits of advertising industry under pressure
5 Source: ACC Profitability Study 2011 by Deloitte (period 2007 – 2010)
405060708090
100110120130
2007 2008 2009 2010
Ave
rage
ope
ratin
g re
sult
(in%
)
National
International
1012141618202224262830
2007 2008 2009 2010
Ope
ratin
g re
sult
in%
of
gros
s m
argi
n
National
International
102030405060708090
100
2007 2008 2009 2010
Pro
fit b
efor
e ta
x (in
%)
National
International
05
10152025303540
2007 2008 2009 2010%
Los
s m
akin
g en
titie
s
National
International
Decreasing profit before tax compared to 2007 levels for both International agencies seem to slowly recover and stabilise, however national agencies’ average profit before tax
keeps declining (86% decline compared to 2007) This could explain the increasing number of national loss making entities (from 4% to 21% in 4 years time)
Operating result Operating result as % gross margin
Profit before tax Loss making entities
© 2013 Deloitte Belgium 6
Shareholder Value
Revenue Growth Operating Margin (after taxes) Asset Efficiency Expectations
Volume Price Realization
Selling, General &
Administrative (SG&A)
Cost of Goods Sold
(COGS) Income Taxes
Property, Plant & Equipment
(PP&E) Inventory Receivables
& Payables Company Strengths
External Factors
Common Pricing Challenges
Downward pressure on prices are decreasing margins
Wrong pricing due to lack of appropriate information and continuous monitoring
Profit leaking away because price exceptions on a regular basis
Profit not maximized because prices are not set at a level granular enough to capture the maximum profit
Under- or overpricing due to inability to predict customer response to price changes
Accelerated price erosion due to lack of visibility into historical pricing of comparable deals
2,6%
3,6%
6,7%
12,3%
Fixed Cost
Unit Volume
VariableCost
Price
1% Improvement Impact on Operating Profit
Source: Compustat, Deloitte Analysis Note: Impact estimate is based on the average Fortune 1000 company
Context Pricing: the most important lever of profitability
© 2013 Deloitte Belgium
Context A significant impact of a 1% price discount / increase
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Δ Volume (%) ≥ Δ Price (%)
Δ Price (%) + Margin (%)
A price reduction of 1% for a product which has a margin of 4,5%. This would require a volume increase of > 29% in order to enhance EBIT.
CB1 5 10 15 20 25 30 35Margin 1,5 3 4,5 6 7,5 9 10,5Price
reduction % Volume increase required in % for unchanged Margin
1 200 50 29 20 15 13 112 200 80 50 36 29 243 200 100 67 50 404 800 200 114 80 625 500 200 125 916 400 200 1337 1400 350 2008 800 3209 600
10 2000
© 2012 Deloitte Belgium
Know what you sell
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© 2013 Deloitte Belgium
Know what you sell A different playing field attracts other players
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More channels & more information……
… requires a different set of skills
…which attracts new players to the market
Consumer data processing & analytics IT skills
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Media agencies
Consulting firms
Production companies
PR firms
© 2013 Deloitte Belgium
Know what you sell The changing model of the advertising agency
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Advertising agency (soft marketing) - Activities around brand awareness & preference - Create & place marketing messages in the
market
Client (hard marketing) - Product features & attributes - Pricing - Distribution - Sales
Advertising agency (Soft marketing) - Activities around brand awareness & preference - Create & place marketing messages in the
market
Client (Hard marketing) - Product features & attributes - Pricing - Distribution - Sales
Advertising agency (customer experience) - Build and execute a multi-channel brand
experience for customer (all points of contact) - Evaluate and strengthen the relationship of
customers with a brand (customer analytics) - Create innovative ways to interact with the
customer
FROM: Creative agency TO: Full integrated service agency
Changing model of
advertising agency
© 2013 Deloitte Belgium
Tips for an innovative business model in advertising 1. Build a marketing approach based on content & connection
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Brands that thrive in today’s marketplace are those that understand and embrace behaviour patterns and use them to the mutual benefit of the brand and the customer. Create content and tell stories the customer wants to hear and that engage the audience with the brand
Advertising budget 2012: $ 3,256 million Followers on Facebook: 63 million
© 2013 Deloitte Belgium
Tips for an innovative business model in advertising 1. Build a marketing approach based on content & connection
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Content marketing isn’t paid, but its not for free… The challenges of adopting a content marketing approach 1. Copywriters > Journalists 2. Ad message > Useful content 3. Campaign approach > Always on 4. Static > Distributed
ADVERTISING CONTENT MARKETING
Paid Earned and Owned
Interrupts Attracts
Push Pull
Periodic Continuous
© 2013 Deloitte Belgium
Tips for an innovative business model in advertising 2. Invest in platforms, then campaigns
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What qualifies as “great work” in today’s fragmented, multichannel consumer-controlled marketing environment ?
Website
App
Social media
Activations
Product (available in stores)
© 2013 Deloitte Belgium
Tips for an innovative business model in advertising 2. Invest in platforms, then campaigns
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PLATFORMS PROGRAMS CAMPAIGNS
About interactions About relationships About messaging
Based on utility Based on perceptions Based on persuasion
Three-way or more Two-way One-way
Enduring Interactive Episodic
Owned media Earned media Paid media
© 2013 Deloitte Belgium
Tips for an innovative business model in advertising 3. Make real time marketing a fundamental ingredient of the marketing mix
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© 2013 Deloitte Belgium
Tips for an innovative business model in advertising 3. Make real time marketing a fundamental ingredient of the marketing mix
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Importance of real time marketing
#1: Real-time marketing delivers what marketers want most.
#2: Real-time marketing turbocharges your other marketing efforts.
Source: Golin Harris – Insights on real time marketing (March, 2012)
© 2013 Deloitte Belgium
Tips for an innovative business model in advertising 4. Be competitive by focusing on core value adding activities
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© 2013 Deloitte Belgium
Tips for an innovative business model in advertising 4. Be competitive by focusing on core value adding activities
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Value adding Production
Design Build
Unique Repeatable
Customized Standardized
Hired for what you know Hired for what you do
Specialized skills Widely available skills
Agency as growth driver Agency as service provider
Client relationship Compensation
Economic offering
Nature of the work
© 2013 Deloitte Belgium
Tips for an innovative business model in advertising 5. Be agile
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A. Build teams, not departments
© 2013 Deloitte Belgium
Tips for an innovative business model in advertising 5. Be agile
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Generalist
Visual design specialist
Content strategy specialist
User experience specialist
Project management specialist
Creative technology specialist
Consumer insights specialist
Analytics specialist
Social media specialist
B. Have a good mix of generalists and specialists in your team
© 2013 Deloitte Belgium
Tips for an innovative business model in advertising 5. Be agile
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“Thanks to the web, companies that move now can leverage a global pool of talent, ideas, and
innovations that vastly exceeds what they could ever hope to marshal internally”
Kevin Maney – Technology editor USA today
C. Think global
© 2013 Deloitte Belgium
1. Build a marketing approach based on content & connection
2. Invest in platforms, then campaigns
3. Make real time marketing a fundamental ingredient of the marketing mix
4. Be competitive by focusing on core value adding activities
5. Be agile
• Build teams, not departments
• Have a good mix of generalists and specialists in your team
• Think global
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Tips for an innovative business model in advertising Recap
© 2013 Deloitte Belgium
It’s all about capturing the value we create for our clients Business model
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Client from our client
Agency Client
VALUE CREATION
VALUE CAPTURING ?
WHO ? WHAT ? HOW ?
• Target group • Value proposition
• Value capturing
© 2013 Deloitte Belgium
Exercise – What observations do you have considering alternative business models?
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• Very difficult to define /determine the value we create
• Only different business model is so-called ‘success fee’ … limited success
• Some parameters that do work: creative used for a longer period or in more countries
• ‘Quality’ of our client counterparts is decreasing
• We do not talk sufficiently about ‘value’ and ‘impact’ we create
• Clients want the complete picture but are not willing to pay for it
• To be considered: a menu card of value
© 2013 Deloitte Belgium
ACC - Value Selling Agenda 28/05
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Topic Description Timing
Start End
Welcome • Sandwich lunch 12:00 13:00
Introduction
• Context
• Evolution of profitability challenges in advertising industry
• Pricing: the most important lever of profitability
• Goals of today’s session
13:00 13:20
Know what you sell • Innovative business models in advertising: concepts & cases
• Team exercise: potential innovative business models in your industry 13:20 14:30
Break • Networking, emails, coffee
Bill for what you sell
• Value Based Pricing and Selling
• Different pricing models
• Price execution as important as price setting
• Team exercise: potential new pricing options in your industry
15:00 16:30
Break • Networking, emails, coffee
Know to whom you sell • Understand the Decision Making Units (DMU) during negotiations.
E.g. the role of procurement
• Asking the right questions during negotiations 17:00 19:00
Closing reception • Snack, drink, networking 19:00 20:00
© 2013 Deloitte Belgium
The Challenge in your industry
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© 2013 Deloitte Belgium
You need to be good at SHAPING the price and DEFENDING the price – CLOSE LOPED PROCESS
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Going-in price
Catalog price
(product/ service)
Walk-away price
Discounts Reduce services Extra services
and solutions
Target Price
Floor Price
Communicating & Demonstrating the value
Defending the value by good negotiations
70-80% 20-30%
Price Setting Price Execution
© 2013 Deloitte Belgium
Functions of Pricing
• Price set is only as good as the value delivered to the customer. Price also serves as a major signal for quality.
• Strategic pricing involves managing customers' expectations in order to encourage them to pay for the value they receive.
• Price is a critical element of a company’s marketing mix and is the only one that directly generates revenue.
• Pricing is treated as part of a well-integrated marketing strategy instead of a tactical response in the marketplace.
• Pricing messages need to be strategically integrated with all other brand messages.
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© 2013 Deloitte Belgium
Setting the right price is marketing, not accounting
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Product Cost Price Value Clients
Product Cost Price Value Clients
Cost-Plus
Value Pricing
• Economic value • Perceived value • Willingness to pay
= Aligning the different values
© 2013 Deloitte Belgium 30
Value Selling is the capacity to articulate the value of your product / service for a specific decision maker a given time (= value for me)
Value Selling and Value Based Pricing go hand in hand (1 + 1 = 3)
© 2013 Deloitte Belgium
Sell value, not price Example – How to sell light bulbs ?
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Traditional approach: Price & Product/service features
Room Bar Grocery Store
•Dimmed light at night • Bright light at wake-up
•Overall improved client experience (increased expenses mini-bar, room service)
•Different colors to create nice atmosphere
• Attract more consumers
• Position products
•More purchases •Higher prices
© 2013 Deloitte Belgium
Classical approach:
What would a car manufacturing company be ready to pay for 20 days of guarding? (3K $ – 6k $)
Value-based pricing:
What is the value for a car manufacturing company to prevent that the image of a concept car is released 1 year prior to official launch date? (1 Billion $)
Sell value, not price Example – How to sell security services ?
Prototype security
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© 2013 Deloitte Belgium
Sell value, not price An approach to Value Based Pricing based on Perceived Value or Economic Value
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1. Identify value drivers
2. Quantify impact
3. Next best alternative (NBA) assessment
4. Define value to be shared with client & final price
• Energy savings • Ease of installation • Reliability (less breakdowns) • Efficiency • Visibility on energy consumption
• Energy savings of 20-30% of total energy used by fans • Energy savings of 10-15% of total energy used by AC • Increased energy reliability resulting in higher customer
satisfaction and higher occupancy rates • Ease to monitor energy system resulting in labour gains
(efficiency)
Value Shared
with client Unique Value
created
Baseline Value
from NBA
Value based price
© 2013 Deloitte Belgium
Value Based Pricing based on Perceived Value or Economic Value applied on a Client Case (1/2)
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A facility management service provider
wanted to bring a Wellness & Wellbeing Solution
to the remote Oil & Gas drilling and production
business
Intense competition in marketplace
Core services are highly commoditized
Significant price transparency exists globally
© 2013 Deloitte Belgium 35
Value Based Pricing based on Perceived Value or Economic Value applied on a Client Case (2/2)
Absenteeism
Cost Impact Revenue Impact
Onshore Admin Costs
Helicopter Costs
Replacement Costs
Overtime Costs
Absenteeism linked Revenue loss
Turnover
Cost Impact Revenue Impact
Recruitment Costs
Induction Costs
Agency Staff
Overtime Costs
Turnover linked Revenue loss
Employee Health and Engagement
Cost Impact Revenue Impact
Job Satisfaction
Smoking Rate Impact
Obesity Impact
Alcohol consumption over govt. guidelines
Cost Impact Revenue Impact
Major Injury Cost
Over 3 day Injury Cost
Minor Injury Cost
Insurance Cost
Accident linked Revenue loss
Accidents
Direct Impact Indirect Impact
