Some useful B2B pricing tools Ian Tidswell February 2017
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Ian Tidswell Biography
Founder of een Consulting, focused on helping B2B companies develop best-in-class end-to-end sustainable pricing processes
Professional Experience
• Since 2016, Independent Professional, Switzerland
• 4 years, Global Head of Pricing, Syngenta, Switzerland
• 2 years, Pricing Transformation Lead, Medtronic, Switzerland
• 6 years Partner, Head of Business Consulting, Vendavo Consulting, UK and USA
• 4 years, Director, i2 Technologies, USA
• 4 years, to Engagement Manager, McKinsey & Company, USA
Selected Experiences
• Developed a pricing framework & process for pricing innovations for out-licensing for leading diversified industrial company
• Built the HQ global pricing team for Syngenta. Indirect management of in-country pricing managers
• Lead multiple in-country projects for Syngenta to diagnose pricing opportunities and actions to address price setting, commercial terms management & price execution challenges
• Lead development of a global commercial terms/policy framework and playbook to align CT/P with strategic goals in each country within Syngenta, improved CT/P performance and enabled automation
• Headed the strategic initiative to substantially improve, harmonize and automate Medtronic International’s pricing processes across all major markets. Drove improved pricing & risk exposure
• At Vendavo successfully led discovery, design and deployment of Vendavo price system at multiple customers including chemicals, distributor, semiconductor, tire and mobile phone manufacturers
• Frequent speaker at global pricing conferences
Education
• Ph.D. Physics, Harvard University, Cambridge, Massachusetts, USA• B.Sc. in Physics, Imperial College, London University, UK
At a glance
• Former McKinsey senior consultant with line management experience in MedTech and agri-chemicals business
• Proven B2B Pricing transformation leader
• Practical, hands-on approach with track record in value delivery
• Based in Basel Switzerland
• LinkedIn Profile
• Email: [email protected]
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24Project Stakeholder Management6
20Type of Pricing5
14Value Maps4
12Prioritization Workshop3
9Pricing Management Frameworks2
6Pricing Maturity1
4Introduction0
Contents
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Introduction to pricing tools
• The attached are tools that I have found useful in various initiatives to improve different aspects
• By no means meant to be exhaustive, I will update occasionally
Tool Purpose and explanation
Pricing Maturity Assesses the relative maturity of pricing activities. Useful for identifying opportunities, tracking progress on initiatives and measuring progress of price maturity
Pricing Management Frameworks
Helps to define the major pricing process steps and decision points. Useful for breaking pricing challenges into manageable pieces
Prioritization Workshop Helps to identify opportunities in a BU or country organization. Ensures buy-in from the local management team on initiatives (solving “their” problems). Helps to balance the mix of short- and long-term impact projects
Value Maps Tool for understanding the relative position of a product offering versus competing products
Type of Pricing Helps to drive alignment on key factors that affect price
Project Stakeholder Management
For major initiatives ensures that the stakeholder landscape is understood, so influencing efforts can be focused on appropriate stakeholders
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Four pricing maturity assessment dimensions
Portfolio Pricing Commercial Terms & Policy Pricing Execution Supporting
Pricing strategy alignment Customer and channel Segmentation
Price Governance Management support
Collection and use of market price data
CT/P aligned with strategic goals
Track and Monitor Pricing KPIs
Core Pricing Team Capabilities
Portfolio pricing setting CT/P effectiveness & efficiency
Customer price exception management
Extended pricing team skills (sales, marketing, finance)
New product pricing Product Push balance Price Communication Pricing relevant data
Product Segmentation Customer loyalty programs Pricing system
Price corridor setting Promotions
• An assessment of pricing maturity can be useful to identify focus areas to address going forward, AND help track and drive progress as a management tool
• Using pre-define levels to assess
• Current level
• Target level (in 6-12 months and long-term goal)
• Importance of the level
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Area Minimal Low Team assessment High High Performing Importance
Pricing strategy alignment
Collection and use of market price data
• No price tracking • No new product
price research• No centralized
collection from sales• No/limited analysis
of own price trends
• Price tracking of all products with >$20m revenue
• Customer DCM analysis of new product with target 5y revs > $100m
• Structured process for collecting competitive intel quarterly
• Regular, consistent analysis of own price trends. Results leveraged
L / M / H
Portfolio pricing setting
New product pricing
Product Segmentation
Price corridor setting
Pricing Maturity Assessment: Portfolio Pricing
Today Target
PARTIAL EXAMPLE
• Multiple levels defined and should be customized to your situation
• Levels should be as unambiguous as possible
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Overall Pricing Framework (example)
• Offer Design• Product & Customer Segmentation• Price Setting (List Price)• Price Guidance (Pocket Price Corridor)• Delegation of Authority, Incentives • Capability development• Communication (internal, external)
• Product & Service Design(Value Architecture)
• Waterfall Design• Comm. Terms & Policies Menu• Process & Automation model• Price Governance model
• Transaction Price Process• Exception Management
• Metrics• Pricing Process• Price Outcome
(absolute, relative)• Adjust tactics, goals
Strategy + Goals
Pricing Structure
Execute
Monitor + React ● 2-5 easy-to-understand elements
● Clear boundaries between thedifferent elements
● Facilitates breaking problems into manageable pieces
● Facilitates clear roles and responsibilities
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High-level pricing decision process flow (example)
● Documents who and where pricing decisions are made
● Ensures a clear, robust decision process with reduced errors
● Enables automation
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Preliminary prioritization of opportunities
Value potential
Ease
to
ach
ieve
Ignore
Quickwins
Majorproject
Big wins(rare)
● Use a flip-chart with the axes pre-drawn
● Write on Post-It notes possible pricing challenges faced by the organization (gathered via pre-workshop interviews)
● Team(s) position Post-It notes with the opportunities on the chart
● Write new Post-It’s for new opportunities or sub-opportunities
● 10-15 minute exercise
● Teams discuss and adjust
● Afterwards prioritize, balancing major projects with quick wins and available resources
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Value Map: understanding the value and price relationship versus alternative options
• Value Maps compare perceived performance and price, indicating which products/services are relatively ‘good’ or ‘poor’ value
• Value Maps can be built from expert opinion ormarket survey data:
• Expert opinion is useful as a starting point
• Market survey data (like a Key Buying Factor –KBF, or Discrete Choice Model – DCM) provide real information
• The position on the Value Map helps predict a products likely trajectory:
• Value disadvantaged products will tend to lose market share over time
• Value advantages products will tend to gainmarket share
• Fair value products with maintain market share
Customer perceived performance
Custo
mer
perc
eiv
ed p
rice
Value
advantaged
Value
disadvantaged
Individual product
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Where to get information on price and sources of value?
Opportunity Assessment
Sales Analysis
Internal Experts
‘Standard’ Market
Research
‘Custom’ Market
Research
Insights from internal expert (sales, marketing) experiences, facilitated price/volumeworkshops, etc.
Analysis using internally sourced sales data : ● Revenue, price, volume, mix
trends by brand● Product cost trends
Market Research targeted to addressing a specific question relevant to the opportunity● End user pain points (Key Buying
Factors - KBF)● Value discovery (Discrete Choice
Modeling - DCM)
Off-the-shelf or ongoing Market Research tracking overall trends: ● Market trends, forecasts etc. ● Competitor analyses● Market structure analysis● Market economics (manufacturer & channel)
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Customer perceived performance
Custo
mer
perc
eiv
ed p
rice
Value
advantaged
Value
disadvantaged
Value Map insights 1: when off the ‘fair value’ line, actions to take
• When a product is out of the Fair Value Zone, two actions can be taken:
• Improve the perceived value with education, marketing, product/service adjustments etc.
• Adjust the price to move closer to fair value
• Some combination of the two
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Customer perceived performance
Custo
mer
perc
eiv
ed p
rice
Value
advantaged
Value
disadvantaged
Value Map insights 2: target areas which have less competition
• In this case the top and bottom of the value map have a number of competitors (red circle) and at high risk of price erosion
• The middle of the value map (green) is much less competitive. New or repositioned products in this area may capture a larger market share
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Customer perceived performance
Cu
sto
me
r p
erc
eiv
ed
price
Value Map insights 3: risks of price wars when lowering prices
• Lowering the price of a product into the value advantaged zone can have the effect of increasing market share…
• …but competitor reactions may result in a price war, permanently lowering the fair-value zone and taking value out of the market
Customer perceived performance
Custo
mer
perc
eiv
ed p
rice
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Typical pricing involves a balance of the 3 types of core pricing approaches
• Undifferentiated products• No supply constraints• Low market discipline:
“compete on price”
• Supply/demand dynamic• Low product differentiation• Many competitors
• Highly differentiated products• Significant unique value• Low competition
ValuePricing
Cost+Pricing
CompetitivePricing
Excess supply vs. demand
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Identify the reference price and your differential
1. Identify the Reference Price: what is the customers next best alternative?
2. Place a dot which indicates the approximate mix of the three types of pricing that affect the Reference Price
3. Define your sources of differential value and place a second dot at a position relative to the Reference Price
4. Document the pricing implications in thetable (see next slide)
Note this is a qualitative exercise, helping toidentify the key price drivers and implications. For new category products, several references may be appropriate.
ValuePricing
Cost+Pricing
CompetitivePricing
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Example of pricing approach
ValuePricing
Cost+Pricing
CompetitivePricing
Tomato seed Product Pricing Implications
Reference “Big Beef” Tomato Track seed prices to growers
Differentiation New Variety – higher yield, longer lifetime after harvest
Add differential based on cost saving to grower and higher price achieved for crop
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For key initiatives assess the influence and attitudeof stakeholders
• Regularly review the stakeholder map for key initiatives with close allies
• For key stakeholders, develop a plan
• Why they are important to the project
• What’s important to them
• Their reason for support/resistance
• Who “owns” the relationship
• Specific actions to be taken
• Keep this confidential!
Influential non-supportersMeet their needs,
keep satisfied
Weak supporters
Show consideration, keep informed
Influential supportersKey players,
engage closely
Weak non-supporters
Minimal effortMonitor
Support of stakeholders
Infl
uen
ce/p
ow
er o
f st
akeh
old
ers
https://www.linkedin.com/in/[email protected]