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Slide 1 of 11 2006 1.Concentrates on the Values & Benefits you bring to your customers, and how this compares to your competition. 2.Determines if and.

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Presentation on theme: "Slide 1 of 11 2006 1.Concentrates on the Values & Benefits you bring to your customers, and how this compares to your competition. 2.Determines if and."— Presentation transcript:

1 Slide 1 of Concentrates on the Values & Benefits you bring to your customers, and how this compares to your competition. 2.Determines if and where you have a Competitive Advantage in all the markets you serve. 3.Performs an in-depth analysis of a full year of your Customer Transactions. 4.Checks your Business Processes and Pricing Management to see if a new approach to Pricing would be helpful. 5.Outlines a typical Work-plan (with quick hits paying for the investment) including: Setup Deployment Typical Team Make-up Timelines Next Steps. A Precision Pricing Program

2 Slide 2 of Price: The Discipline of Profitability Pricing is a Profit Lever with huge upside potential. AVERAGE P&L STRUCTURE - FORTUNE 1000 COMPANY Increases Operating PROFIT by 8.6% by 8.6% IncreasingPRICE by 1.0% 100.0% 20.3% 68.1% 11.6% 101.0% Source: Compustat Gross Sales Fixed Cost Variable Cost Operating Profit 12.6%

3 Slide 3 of Three Levels of Pricing Management Companies that excel at Pricing address pricing issues, threats and opportunities at three distinct but related levels. Supply & Demand Transactions Market Strategy PRECISION PRICING + + = + ++ =

4 Slide 4 of LightModerateHeavy Market Strategy Sources of Profit Opportunities Industrial Hydraulics Business Forms Computers Office Furniture Electric Lamps Specialty Chemicals Electrical Controls Fasteners Vinyl Flooring Pesticides/Herbicides Tires Industry Supply/Demand Improvement in Return-on-Sales realized for a 1% increase in Price (within 1 year) : Transaction Analysis EXAMPLES OF PRICING ENGAGEMENTS – EMPHASIS AND RESULTS Influence Source: McKinsey

5 Slide 5 of Mapping Price vs. Benefit The Value Map illuminates the Price vs. Benefit trade-off. Customer Value = Perceived Benefits compared to the Price Paid. IDEAL Where are YOU? Price Perceived Benefits Value Equity Line Stable Market Shares Five companies with similar products. A B C D E? ? ? ? ?Price Perceived Benefits

6 Slide 6 of Mapping Relative Market Position Market Shares change when competitors are positioned away from the Value Equity Line. Customer Value = Perceived Benefits compared to the Price Paid. VALUE ADVANTAGED Share Loser Share Gainer VALUE DISADVANTAGED Value Equity Line Price Price Perceived Benefits

7 Slide 7 of Pocket Margin Waterfall POCKET MARGIN WATERFALL 1 Year’s Transactions of a Typical OEM Manufacturer Source: Company Financial Records Percent of Book Price Calculate for each major product line and customer. Volume Discounts Competitive Discounts Contract Discounts Book Price Invoice Price Pocket Price Pocket Margin Commissions A/R Costs Direct Materials Direct Labor Overhead Defective Products

8 Slide 8 of Pocket Margin Band The components of the Pocket Margin Waterfall often varies across customers and jobs, resulting in a very wide pocket margin band. POCKET MARGIN BAND AS A PERCENT OF SALES Pocket Margin Percent -15% < -15% -10% -5%0% 5%10%15%20%25%30%35%40%45%50%55% > 55% Wide Band, Great opportunities.

9 Slide 9 of Business Processes – Set clear rules for price setting, with internal & external feedback mechanisms.Business Processes – Set clear rules for price setting, with internal & external feedback mechanisms. Accurate Pricing Data – Aggregate and then disseminate key pricing data to decision-makers.Accurate Pricing Data – Aggregate and then disseminate key pricing data to decision-makers. Organization – Decide “ Who Decides,” establish authority levels, provide real incentives.Organization – Decide “ Who Decides,” establish authority levels, provide real incentives. Pricing Improvements usually come from three key areas: Precision Pricing

10 Slide 10 of Timeline to Deliver Precision Pricing Weeks Activity Preparation Identify target product lines Identify team members Identify team members Conduct kick-off session Conduct kick-off session Market-level Create internal value maps Create internal value maps Develop interview guide, conduct Develop interview guide, conduct customer interviews and refine customer interviews and refine internal value maps internal value maps Transaction-level Set up transactional database Set up transactional database Build detailed Pocket Price / Pocket Build detailed Pocket Price / Pocket Margin bands and Scatter Graphs Margin bands and Scatter Graphs Identify, evaluate, and size quick hits Design new pricing approach Implement recommendations, and initiate system/staffing changes Create monitoring/feedback systems Thereafter: Review every 6 months TYPICAL BUSINESS UNIT PRICING STUDY TIMELINE

11 Slide 11 of Typical Project Organization Steering Committee Steering Committee C.E.O C.E.O V.P. Marketing V.P. Marketing V.P. Sales V.P. Sales V.P. Finance V.P. Finance Internal Internal Resources Resources I.T. Dept. Pricing Management Pricing Management Accounting Accounting Marketing Management Marketing Management Sales (Management Sales (Management and/or Field) and/or Field) External External Resources Resources Beckett Pricing Expert Beckett Pricing Expert + Pivot Table assistance + Power Point Preparation + Database creation + = can be provided by Beckett Advisors if needed Working Team Working TeamCompany Team Leader Team Member (Product Line 1) Team Member (Product Line 1) Team Member (Product Line 2) Team Member (Product Line 2) etc, depending on no. of major product lines etc, depending on no. of major product lines


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