Is it Time to Rethink Your Pricing Strategy & Boost Pricing...
Transcript of Is it Time to Rethink Your Pricing Strategy & Boost Pricing...
Is it Time to Rethink Your Pricing Strategy & Boost Pricing Power?
Stephan M. Liozu
Founder of Value Innoruption Advisors
Pricing power is still untapped 65 percent of the companies are not able to charge the prices they deserve. Low pricing power is costly. It cuts profits by 25 percent.
Price wars continue 46 percent of companies think they’re in a price war.
83 percent of companies in a price war blame competitors for starting it.
The inflation threat is underestimated Companies get only half of what they expect when they try to raise prices.
68 percent of the companies plan to increase prices below or in line with
inflation.
The Reality Of Pricing (SKP Global Pricing Study 2011 – 3900 Decision Makers)
There Has Never Been a better time to Start
The Journey and to Pursue Pricing Excellence!
“The single most important decision in
evaluating a business is pricing power. If you’ve
got the power to raise prices
without losing business to a competitor, you’ve
got a very good business.
And if you have to have a prayer session before
raising the price by 10 percent, then you’ve got
a terrible business”. Warren Buffet - 02/18/2011
Pricing Power Does Matter!
Best-in-class firms develop new pricing models
to match their new or revised business.
There is a lot more attention being paid to customer value
and the value-based pricing methodology. Adoption is
growing.
Investments in pricing optimization software are exploding.
Consulting companies report a large increase in training in
the areas of negotiation, account management and
value selling.
What are the Main Trends in Pricing?
Price Orientation Versus Pricing Realization
Source: McKinsey & Co
Pricing realization: relates to how close a firm sticks to list price and
avoid profit leaks in pricing tactics and in deal negotiations with customers. Pricing realization includes dimensions of pricing discipline and pricing compliance.
Materialization of Pricing Realization
Pricing rules and guidelines
Accountability for not following guidelines
Price deviations approval framework
Pricing flexibility and delegation levels
Pricing systems to monitor pricing deviations
Pricing Orientation: is also an approach, a “philosophy” or a pricing practice.
Managerial pricing orientation “deals with decisions relating to setting or changing
prices. It also includes price positioning and product decisions introducing new
pricing points to the business unit’s product or service mix” .
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Intense & specific training
program (pricing, value selling)
Pricing process formalization
(Rules, regulations, guidelines,
SOP, KPI’s)
Integrated pricing management
systems (ERP, pricing software)
VALUE-BASED PRICING/
HIGH PRICE REALIZATION
Strategic and tactical pricing
delegated to sales function.
Margins and costs are primary
focus. Pricing not formally
reviewed.
Advanced cost models to
support price decisions.
COST-BASED PRICING/
WEAK PRICE REALIZATION
No pricing team or function.
Top Leadership only involved
for large/difficult opportunities
Formal VOC research
Formal pricing research
Scientific proprietary modeling
tools (TCO, value-in-use)
Price deviations approved by
Sales Leadership based on
margin or ROS targets.
PRICING POWER ZONE WHITE FLAG ZONE
Strict price deviation approval
process and strong discipline.
Dedicated pricing team
Sales force has ability to
negotiate deals up to a level.
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Contrasts in Pricing Power Levels
TRENDS/PATTERNS/PREFERENCES
CATEGORY MANAGEMENT
SOLUTIONS/SYSTEMS PRICING
IN PRICE SETTING PROCESS
REBATE AND DISCOUNT MANAGEMENT
PROFIT DESK MANAGEMENT
RATIONALITY AND CONFIDENCE
IN PRICE GETTING PROCESS
DEAL/QUOTE MANAGEMENT
ANALYTICAL SUPPORT FOR
NEGOTIATION SKU/PRODUCT RATIONALIZATION
PROJECTED P&L ANALYSIS
ELASTICITY ANALYSIS
PRICE INCREASE/DECREASE SUPPORT
PRICING POWER PRICING POWER
SCIENCE-BASED SEGMENTATION
REAL TIME ANALYTICS
PRICING COCKPIT FOR COUNCIL
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The Power of Pricing Software
COST TO SERVE/WATERFALL ANALYSIS
Pricing Optimization software leads to average
total sales revenues improvement of between 2 to 4%
and a payback under 2 years – Gardner 2012.
Average operating margin increase of 3.2% for pricing
initiatives after 18 to 24 months of implementation – Deloitte Consulting.
Committed leadership on
pricing can increase EBITDA by 2% to 4% - McKinsey.
Firms investing in pricing
transformation can expect a 3%
increase in total revenues
straight to bottom line in 2 years
– Pricing Cloud
The Impact of Pricing
Sources of Profit Improvements
Stephan M. Liozu, Ph.D.
www.stephanliozu.com http://www.linkedin.com/in/stephanliozu
@StephanLiozu
Thank you for your attention!
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