Pps Presentation B2 B2 C Screen Versionv2

Business 2 Business 2 ConsumerPrice and Value Management Through Tiered Channels

Presented by: Tom Monheim Brian Sharp

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Today’s Agenda

• Welcome & Introductions

• Pricing Transformation at Trane

• Managing Price and Value through Tiered Channels

• Case Studies

• Key Take-Aways

• Q & A

3

Introductions

• Who is Trane? And who is Kalypso?

The US leader in air conditioning, heating and clean air systems

Premium positioned brands:• Trane• American Standard

Trane is the Quality & Reliability Leader and is #1 in brand awareness, consideration and loyalty

The US leader in air conditioning, heating and clean air systems

Premium positioned brands:• Trane• American Standard

Trane is the Quality & Reliability Leader and is #1 in brand awareness, consideration and loyalty

A management consulting firm focused on helping clients deliver on the promise of innovation. Our unique perspective on growth and innovation informs our Pricing & Value Management Practice, driving increased profitability throughout the product lifecycle.

A management consulting firm focused on helping clients deliver on the promise of innovation. Our unique perspective on growth and innovation informs our Pricing & Value Management Practice, driving increased profitability throughout the product lifecycle.

The Kalypso Difference• Exclusive Focus• Comprehensive Capability• Integrated Approach• Informed Opinions• Sustained Results

The Kalypso Difference• Exclusive Focus• Comprehensive Capability• Integrated Approach• Informed Opinions• Sustained Results

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What’s our business model? B-to-B or B-to-C?

• Leading consumer brands, with a tiered distribution model– Two-stage distribution– Mix of company owned and

independent distributors– No direct sales to homeowner– But homeowner is ‘king’

HVAC OEM DistributorDealer or

ContractorHomeowner

B-to-B-to-B….-to-Consumer

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Today’s Agenda




• Case Studies

• Key Take-Aways

• Q & A

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Pricing transformation begins…

• New pricing leadership brought in ~3.5 years ago– Challenges: Aging systems, immature processes, lack of

analytics, industry price disruption (13 SEER)

Process overhaul?Process

overhaul?

Replace old pricing system?

Replace old pricing system?

Market price studies?

Market price studies?

13 SEER pricing?

13 SEER pricing?

Competitive insights?

Competitive insights?

New product pricing?

New product pricing?

Gaining or losing price?

Gaining or losing price?

Are we quoting too

often?

Are we quoting too

often?

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Priorities must be established…

• Six primary functional areas of pricing defined

• Priorities developed within this framework

List Price Management

Discounting & Controls

Competitive Intelligence

Value Management

Performance Analysis / Insights

Core Systems

•Calibrate

market prices

(13 SEER)•Quoting

guidelines

and consistency

•Upgrade

analytics•Core processes

not ready for

systems

replacement

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Phase One in Action

Build price waterfallPrioritize buckets; data rarely cooperates; avoid peanut butter spreading

Price / Volume / Mix modelsEssential for measuring ‘pure price’ gains – no Pricer should be without

Data Warehouse, Access, Excel integration (VBA)

Great way to prototype decision support tools and build requirements for new core system

Introduce Value Management concepts

Always good to plant seeds, even if not ready to harvest yet

Key Actions Important Lessons

Field alignment onpricing strategy

Especially important around major product transitions; can’t assume everyone ‘gets it’

Process definition for market price studies

Important for setting and managing expectations, internally and externally

Standardize quoting processes Improve distributors’ understanding of our decision guidelines; more efficient for all

Price band analysisWide ranges of sell prices has big implications on list price and discounting strategies

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Phase Two in Focus

• Core systems replacement, along with process redesign around discounting

• Value Management focus– Value mapping, segmentation, early pricing input for NPDs,

managing value among channel partners

List Price Management

Discounting & Controls

Competitive Intelligence

Value Management

Performance Analysis / Insights

Core Systems

Today’sFocus

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Today’s Agenda




• Case Studies

• Key Take-Aways

• Q & A

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ValueDrivers

What’s the value proposition?

Heard at the water cooler:

“We have trouble moving our value proposition down the value chain”

HVAC OEM(TRANE)

DistributorDealer or

ContractorHomeowner

CalculatedFair trade on activities performed by distributor in return for appropriate margin and inventory turnover

CalculatedReliability, ease of servicing, & installation, training/support from distributor, fast availability of products

PerceivedReliability, efficiency, ease of use, comfort, product and air quality, value

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How do we determine value and set price?

Two Schools of Thought

“Value is Relative”- -

Perceived Value

“Value is Quantifiable”- -

Calculated Value

Value mapsPrice vs. performance

Relative market position

Waterfall chartsEconomic Value Analysis

Return on investment

Decision to use oneor both depending

on the uniquesituation

Alignment of Price and Value

Tools

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Perceived Value

Higher Cost

Relative Price

Lower CostInferior Superior

Relative Perceived Value

Worse Value

Fair Value Line

Better ValueEconomy

Average

Premium

The Value Map shows the position of each competitor in terms of the overall cost versus the overall benefit.

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Measuring Perceptions – Example

• Consumers rated the importance of 53 potential HVAC attributes

• Attributes were ranked based on the number of “Extremely” or “Very Important” responses received

T2B Stated HVAC Importance Ratings -- Extremely/ Very Important: BY FACTORS

94 9489 88

83

74 72 70

63

46

3833

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ProductQuality/

Durability

EnergyEfficient

GoodValue/AddsValue

Easy Use/Clean/

Maintain

MakesHomeMoreCom-

fortable

SuperiorProduct

I mprovesAir Quality& Environ-

ment

Brand/Manu-

facturerAttributes

Rec'd. ByExperts/

Fam/Friends

Quickly/Easily

Available

I nno-vative/Unique

Product/Brand

Low CostProduct

Style/Luxury

Tier 1 Tier 3 Tier 4 Tier 5Tier 2

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Measuring Economic Impact – Value Waterfall

A Value Waterfall is used for estimating the economic value-in-use of solutions. This tool is most effective when your business has a clear economic advantage over a specific competitor or when you are weighing purchase decision (e.g. as a consumer)

$ Variance Cost/Profit

vs. CurrentSolution

Current Solution

Break Even

Savings

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Today’s Agenda




• Case Studies

• Key Take-Aways

• Q & A

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Case #1: New Material for Home Insulation

• 54% of energy in the US is consumed by buildings (residential and commercial) and their construction

• Department of Energy reports that over 40% of the cost of heating and cooling is lost through uncontrolled leakage through the building envelope

• Sharp spikes in energy prices in 2008 increased homeowner awareness related to insulation solutions

• Energy-efficient, or “green” construction is the main trend in the building and construction sector

A new technology is available which reduces energy leakage through the building envelope while maintaining or increasing

the R value of the insulation in the wall and roof space in conventional homes, relative to traditional fiberglass insulation

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ValueDrivers

CalculatedTotal cost of ownership over an expanding time frame (2-5 years)

One Offer. Four Value Propositions.

Scope of enterprise

BasicMaterials

Manufacturer

ResidentialInsulation

Manufacturer

InsulationInstaller

ResidentialHome Builder

Homeowner

CalculatedFair trade on order fulfillment activity performed by distributor in return for appropriate margin and inventory turnover

CalculatedApplication training and technical support augmented by cooperative marketing spend and effectiveness

CalculatedReturn on investment for labor and material inputs during home construction process leading to maximum retail price capture Perceived Value:

functional and emotional benefits of reliability

“My home is ‘green”

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Value proposition to the homeowner is clear…

“install better insulation in your home and save 25-40% on your monthly energy bill…”

Variance Cost/Profit

vs. Fiberglass

Additional Installed cost of

InsulationHVACSizing

Elimination of

Humidifier

Present Value of Future Energy Savings

Current Option: Fiberglass Insulation

Break Even in x months

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Value proposition for residential homebuilder is not clear…

“Build your homes with our insulation….and increase your cost/home?”

Variance Cost/Profit

vs. Fiberglass

Raw Material & Installation

CostsHVAC Sizing

Elimination of

Humidifier Extra

Ventilation

Construction Site

Disruption

Current Option: Fiberglass Insulation

Break Even

Price Markup on

House

Profit

Problem: homebuilders don’t understand how to cover the costs of better insulation

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Case #2: Beyond Hot & Cold: Ideal Home Environment

Clean Air is a Big Deal• 45% households with respiratory

problems• 20M with asthma• Indoor Air 5x worse than Outdoor Air

(EPA study)• Consumers willing to pay for proven

solution

Initial Launch• ‘Bolt-on’ air cleaner • Upgrade kits for

older electronicair cleaners

• $1400 MSRP• Significant marketing

investment

Results• Tremendous positive consumer

experience• From ~10% to >50% market share

first year of launch• Grew entire clean air market by 42%• Drove high end system and

accessory sales• Enhanced dealer profitability for

those who “get it” 80% / 20% rule Channel still focused

on ‘hot & cold’Room Room Air Air

PurifierPurifier

Typical Typical HVAC HVAC

SystemSystem

Electronic Electronic Air CleanerAir Cleaner

Trane Clean Trane Clean Air Air

TechnologyTechnology

Trane/AmStd Solution• Exclusive, proprietary technology• 99.98% efficient at 0.1 microns• Removes the flu virus!• Highest available Clean

Air Delivery Rate (CADR)

CA

DR

CA

DR

Cle

anE

ffec

tstm

Cle

anE

ffec

tstm

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Value Promise

• Extension of successful clean air launch

• Premium price to dealer (vs ‘bolt-on’ solution)

• Significant installation labor savings (time, $)

• Compact design needed for some applications

• Wants clean air

• Willing to pay $1400+ for Trane CleanEffects performance

Value Reality

• Extra SKUs drove extra carrying cost

• Low % of dealers who “get it”

• Didn’t adjust price to homeowner to reflect labor savings

• Cost-plus mentality

• Still wants/needs clean air

• Opted for ‘bolt-on’ solution

Value Drain Across the Tiered ChannelsValue Drain Across the Tiered Channels

HVACOEM

DistributorDealer or

ContractorHomeowner

…Not as rosy for Integrated Clean Air

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Distribution channel creates a value drain…V

alu

eV

alu

e

So

phis

tica

tion

So

phis

tica

tion

HVAC OEMs

Creating a range of solutions which address emerging homeowner needs related to energy management, air quality, and climate control

HOMEOWNERS

Growing awareness related to energy management, air quality, and total cost of ownership as it relates to household budget and operations

ValueDrain

Value Created Needs

CHANNELMoving product through a mature,

2 tier structure across a highly fragmented mix of regional and

privately held businesses

Channel-to-market compromising value capture

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Value analysis drives a new set of actions…

• ‘Pressure test’ value propositions with each tier in the channel

• Look for conflicting benefits and points of departure

• Evaluate go-to-market options – particularly relevant for non-core products

• Segment existing channels and target opportunities

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Today’s Agenda




• Case Studies

• Key Take-Aways

• Q & A

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Key Take-Aways

• Pricing group must be involved in value management through the entire product lifecycle (concept to end of life)

• Establish value stories and marketing plans for every channel touch point through end-user

• Rigorously apply value science: either perceived or calculated value

Value drives tactics!

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Contact Information

Tom [email protected]

Tom [email protected]

Brian [email protected]

Brian [email protected]

Thank you for attending today’s presentation!

Documents

Pps Presentation B2 B2 C Screen Versionv2