www.simon-kucher.com
Designing the product around the price
Monetizing Innovation
“…the world's leading pricing consultancy…”
The Economist
Ljubljana, 3 October 2017
Alexandra WogritschConsumer Goods & Retail Practice
Office ViennaSchubertring 14, Top 5.OG1010 Vienna, Austria+43 1 512 [email protected]
Simon-Kucher & Partners at a glance
Growth and competitive strategies
Product portfolio (re-)design
Pricing excellence
Sales strategies and sales channel optimization
Customer-centric digital approaches
End-to-end transformation towards customer excellence
…
Global presence
Best consultancy in marketing and sales
> 3,000 projects in the last 3 years
World leader in giving advice to companies on howto price their products
Pricing strategy specialists
The world’s leading pricing consultancy
In pricing you offer something nobody else does
BusinessWeek The Economist
Professor Peter DruckerThe Wall Street Journal
World leader in pricing
Source: manager magazin survey of top managers in Germany, August 2007 and 2011/IMB
Source: brand eins Thema/Statista survey of approx. 1,800 partners and project leaders from consulting firms and approx. 1,400 C-level managers from German companies, May 2014, 2015, 2016 and 2017
Marketing and sales Marketing, branding and pricing
Sales, after-sales and CRM
brand eins Thema manager magazin
Simon-Kucher & Partners
Boston Consulting Group
McKinsey & Company
12
3
Simon-Kucher & Partners
Simon-Kucher & Partners
34 offices worldwide, > 1,000 employees, €240m revenue in 2016
McKinsey & Company
Boston Consulting Group
Boston Consulting Group
McKinsey & Company
Amsterdam Atlanta Barcelona BeijingBonn BostonBrusselsCologneCopenhagen Dubai FrankfurtGeneva Hamburg Hong KongIstanbul London Luxembourg
Madrid MilanMountain View Munich New York Paris San Francisco Santiago de Chile São PauloSingapore StockholmSydney TokyoTorontoViennaWarsawZurich
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Selected consumer goods clients – many other clients excluded due to confidentiality.
We have extensive experience in consumer goods and retail
Selected Simon-Kucher clients
Food/Beverage Non-Food Retail
ABF
Beam Suntory
Danone
Kellogg’s
Mondelez
Molson Coors
Nestlé
Moet Hennessy
Pernod Ricard
Peroni
Unilever
Pepsi
adidas
Asics
Beiersdorf
Coty Prestige
Henkel
Kimberly-Clark
Mary Kay
Nike
Philips
Reckitt Benckiser
Shiseido
Yves Rocher
7 Eleven
Auchan
Ahold Delhaize
Barnes & Noble
Castorama
Douglas
Rewe
Media/Saturn
Leroy Merlin
Metro C&C
Office Depot
Relay
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Four numbers
1.6 72
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1.6 72
4 9OH_034DE17008_CGR_FMCG Ljubljana 2017_Simon-Kucher_Monetizing Innovation_3 October 2017 5
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1 Source: Battelle, R&E Magazin; Fortune; Aug. 21, 2015
R&D investments higher than ever
13,5
13,4
10,4
10,0
8,0
VW
Samsung
Microsoft
Roche
R&D investments 2013 in bn1 (share of turnover)
Companies with highest innovation expenditure
(5.2%)
(6.4%)
(13.4%)
(19.0%)
(13.2%)
Global R&D investments
$1.559bn
Selected numbers in the CPG world:
P&G 2.9%
Clorox 2.4%
Kellogg’s 1.4%
Mondelez 1.4%
General Mills 1.3%
6
1.6 72
4 9OH_034DE17008_CGR_FMCG Ljubljana 2017_Simon-Kucher_Monetizing Innovation_3 October 2017 7
Source: Simon-Kucher Global Pricing Study 2014
How did your last new product launch perform?
On average only 28% of new products meet their profit targets
Are your new products meeting their profit targets?
Share of products
No
72%
Yes
28%
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A tale of two car launches:
vs
Dodge Dart Porsche Cayenne
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Dodge Dart: Designed without customer WTP at the centre
Disastrous sales performance
Second biggest new product flop in 2012 after the Apple iPhone map
Discontinued in 2016
Sergio Marchionne, CEO
I can tell you right now that both the Chrysler 200
and the Dodge Dart, as great products as they
were, were the least financially rewarding
enterprises that we've carried out inside FCA in
the last eight years. I don't know one
investment that was as bad as these two were..
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Porsche Cayenne:Roaring success driven by focus on the customer
Challenge
Needed a new innovation outside traditional sports car niche
Zero experience in the SUV category
Inconsistent with the Porsche brand at the time (speed, power, daring and engineering)
Outcome
Most profitable car in the automotive industry
Most important car in Porsche portfolio
~50% of total company profit
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1.6 72
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There are four types of innovation flops
#3: Minivation
(underpriced or "undervolumed")
#1: Feature Shock
(over-engineered or wrong features)
#4: Undead
(born to fail)
#2: Hidden Gem
(potential not recognised)
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#1: Feature Shockamazon fire phone: An offering consumers didn’t want
A feature-packed phone with
… four cameras
… facial recognition technology
… 3D effects
… the shopping feature Firefly
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The result:
A $170 million write-down due to unsold inventory
One of amazon’s biggest flops in years
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#2: Hidden GemDigital imaging: Kodak did not realise its potential
Suffers internal resistance for fear of cannibalising film sales
1995Kodak introduced its first digital camera, only getting serious about that business in 2001
2012Kodak declared bankruptcy
1974Steven Sasson tasked with figuring out whether charge-coupled devices (CCD) had any practical applications
invents first digital camera
TodayDigital imaging & sensors critical across myriad sectors
Manufacturing
Military & aerospace
Upstream oil & gas
Scientific research
Medical & life sciences
Security
…
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#3: MinivationPark Assist: A product heavily underpriced
OEMs understand actual customer value
VW's customer price: €670Cost-plus pricing towards VW and other OEMs: approx.€100
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#4: UndeadSegway: Born to fail or clearly the wrong positioning
Ambition
Breakthrough personal transporter to transform the B2C market
Business plan sales target:
50,000 in first year
£6,3002
Reality
Niche B2B product for tour operators and shopping centre security
Actual sales:
30,000 in 6 years
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1.6 72
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9 key steps for successfully monetizing innovations
The core: Product configuration
and bundling
3Segment!
One size fits all doesn't work!
2Have the
WTP talk early
1
Outside-in business case:
from hoping to knowing
6Pick the winning price strategy:Skimming vs. penetration
5
Maintain your
price integrity
9
4 Monetization model:
How you charge trumps what you charge
Use behavioural pricing
to fine-tune
8Value communication:
The product as such is not sufficient
7
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Willingness to pay... often not considered!1
20
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Source: Simon-Kucher project database
Without the WTP talk you cannot prioritize and focus!
Brand
…
Fastening
CutColor
Sole material
Size
Outer material
Additional detail
Inner material
Value drivers Preference drivers
…
What are consumers actually willing to pay for?
What are mere choices of preference?
1
21
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Source: Home Depot website on Apr 24 2017
Convenience helps drive a 50% premium for one added product feature
Weber charcoal grill "Original kettle"
Price:$149.00
Weber charcoal grill "Original kettle premium"
(269)
Price:$99.00
(94)
Only difference is this ash tray!
Industry Example
1
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Source: Simon-Kucher
Segmentation: One size fits none!2
23
Commuting
Workplace
School time
On the go meals
A
B
C
D
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What does that look like in reality?3
Example: Impulse consumption opportunity
Hyper
Super
Cash&Carry
Convenience
Mom&Pops
Pharmacies
Travel Retail
Vending
Street Vendors
Horeca
Bakeries
25cl
33cl
50cl
75cl
1l
1.5l
Occasion Brand Package Price Channel
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
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Source: Simon-Kucher
Technology has created different consumer shopping behaviors
Subscription Trial-to-purchase / leasing
Mobile ordering, payments & loyalty programs
Flash sales and direct to consumer
Portable consumer experiences
and many more…
4
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Source: www.loreal.com; https://www.ft.com/content/e980243e-13ee-11e4-8485-00144feabdc0
And the tools to cultivate a direct relationship through offer personalization
Free virtual makeup try on app positioned as a personalized, digital beauty advisor
Almost 20 million downloads worldwide, top lifestyle app, 65 million product trials in 2015
Buy easily on the app through L’oreal.com
Barcode scan for use in stores
Digital recreates a content and a relationship with the consumer that we have never had in the self-service world. People go into a store, they are faced with a wall of products and by definition, they don’t get any advice when it’s self-service. We can create the digital beauty adviser that will help them choose"
Jean-Paul Agon, CEO
4
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Pricing strategy... Not always on top of the agenda!5
27
0,00
0,05
0,10
0,15
0,20
0,25
0,30
0,35
Profits Marketshare
Volume Product mix Volumegrowth
Revenues Costreduction
CEO
CMO
Sales director
CFO
Supply chain
Account manager
Product manager
Pricing
Marketing
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Source : Simon-Kucher project database
The huge challenge of aligning pricing goals
Relative importance
5
28
Feminine Care case study: Successfully broke line-pricing Active/Sportline launch
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Source: Simon-Kucher experience
Without WTP your business case is useless!6Typical process
Concept testing Apply volumesBack solve PPA & volume to hit profit hurdles
Assemble basic ingredients, core
Include price and count elasticity, perceptions
Understand secondary impacts
Add risk assumptions
Source of volumeConsider competitive reactions (war gaming)
Keep checking in
29
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Source: www.lush.com, www.everlane.com
What does your product stand for? An innovation won’t speak for itself 7
30
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Source: Simon-Kucher project example
Your consumers will behave irrationally
High price article:
$ 495.00
$ 745.00
$ 495.00
$ 745.00
Volume increase: 21%
After:Before:
$ 2.50
$ 3.50
Low price article:
Volume increase: 14%
After:Before:
$ 2.50
$ 3.50
8
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Source: Simon-Kucher
Simple principle for price reactions
- Board member
In our organization you have to come up
with at least three measures what can be
done apart from price decreases before
we even think about decreasing prices.
This simple rule had the highest impact.
Everybody understood.
9
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9 key steps for successfully monetizing innovations
The core: Product configuration
and bundling
3Segment!
One size fits all doesn't work!
2Have the
WTP talk early
1
Outside-in business case:
from hoping to knowing
6Pick the winning price strategy:Skimming vs. penetration
5
Maintain your
price integrity
9
4 Monetization model:
How you charge trumps what you charge
Use behavioural pricing
to fine-tune
8Value communication:
The product as such is not sufficient
7
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monetizinginnovation.com
Case studies
Methods & tools
Blog articles
…learn more!
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www.simon-kucher.com
AmericasAtlanta, Boston, Mountain View, New York, San Francisco, Santiago de Chile, São Paulo,Toronto
Europe/Middle East Amsterdam, Barcelona, Bonn, Brussels, Cologne, Copenhagen, Dubai, Frankfurt, Geneva, Hamburg, Istanbul, London, Luxembourg, Madrid, Milan, Munich, Paris, Vienna, Warsaw, Zurich
Asia/PacificBeijing, Singapore, Sydney, Tokyo
Vienna officeSchubertring 14/Top 5. OG1010 Vienna, AustriaTel. +43 1 5122979 0
Thank you!
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Alexandra Wogritsch
Director
Office Vienna
Schubertring 14
1010 Vienna
Austria
Tel: +43 1 5122979 16
Mobil: +43 664 9630150