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3/18/20
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VALUE PRICING: 8 PITFALLS AND HOW TO AVOID THEM
WEBINAR SERIES 2020
Presented by: Joanne M. Smith, President, Price to Profits Consulting, LLC
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WHO ARE WE
We were founded in 1982 at Penn State as an Institute of leading Academics and B2B companies for the purpose of advancing the Science of B2B Marketing.
We exist to accelerate the development and adoption of innovation and marketing best practices for the growth and sustainability of B2B Companies.
Our mission: Be the premier organization for dynamically and intimately connecting B2B Marketing professionals with thought leaders, educators and academic researchers advancing the science of B2B Marketing for the benefit of the growth of our Member Companies.
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3/12/2020
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Price to ProfitsB2B Consulting
Joanne M. Smith
Former DuPont Corporate Marketing and Pricing Director
President, Price to Profits Consulting, LLC
www.price2profits.com
Value Pricing: 8 Pitfalls and How to Avoid them
Joanne M Smith
• President, Price to Profits Consulting
• Former DuPont Corporate Head of Marketing, Pricing and Customer loyalty
• Author of The Pricing and Profit Playbook and The Price Negotiation Playbook
• Professional Pricing Society (PPS) & Institute for the Study of Business Markets (ISBM) Faculty
©P2P Cannot be re-produced or transmitted in any form without the permission of Price to Profits Consulting
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Value-pricing through selling delivers big profits.
©P2P Confidential 3Specialty Source: LeveragePoint CRM client data comparing product prices with and without use of VIU tool.
Commodity Source: DuPont & P2P client experience
5-15% higher close rate(with best practices)
5-25% higher price (with best practices)
5-20% premiums for
select markets
Sp
ecia
lty
Co
mm
od
ity
Higher share &
retention
PRICE VOLUME
Case Study 1:(Modified for teaching purposes)
©P2P Confidential 4
Situation Background Challenge
Tough
Times
Ahead
• Existing product
• $5 Million Account
• Product enables better mixing & higher purity.
• Had supply issues. Issues resolved.
• Raise Price 25%!
How successful do you think sales will be given these facts?
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Our Feature Customer Benefit(Detractor)
Value Driver Value $/Year
(Profits)
Higher purity Enables your product to be
superior thus 3 – 5% higher sales
Higher revenue $3MM – 5MM
Better mixing 7% Less rework Reduced costs $ 200M
Better mixing 9% Faster processing time Reduced costs $ 400M
Better mixing 10% Less product needed Reduced costs $ 500M
Case Study 1: Our Benefits.(Modified for teaching purposes)
Case Study 1: Our Value
©P2P Confidential 6
3.00
0.200.40
0.50
5.00
9.10
0.00
4.80
1.42
2.88
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
Price of NBA Higher Growth Less Rework Faster Processing Less Ingredients Indifference price Value for customer New target price
Unit Price6.22
5.00
9.10
6.22
Higher Purity
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The Value of “Quantifying Value”
• Builds sales confidence
• Stimulates a value discussion
• Builds customer trust / fairness
• Enables the buyer to sell it internally
©P2P Confidential 7
RIGHT DECISION
Value price, value market & value sell.
©P2P Confidential 8
Value/Price Options
Value Marketing & Selling
Value Negotiating
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Many companies struggle to get the big dollars.
©P2P Cannot be re-produced or transmitted in any form without the permission of Price to Profits Consulting
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Few people are using the methodology
This is too hard to quantify
The customer won’t accept the price
The 8 Common Pitfalls
©P2P Confidential 10
Value/Price Setting
Value Marketing & Selling
Value Negotiating
1. Business Approach
2. Value Articulation
3. Calculation
4. Validation
5. Share Capture
6. Influencing Perception of
Value7. Skills & Confidence to Win
8. Sustainability / Leverage
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The 8 Common Pitfalls
©P2P Confidential 11
Value/Price Setting
Value Marketing & Selling
Value Negotiating
8. Sustainability /Leverage
1. Business Approach
2. Value Articulation
3. Calculation
4. Validation
5. Share Capture
6. Influencing Perception of
Value7. Skills & Confidence to Win
Market ValidationDays to Weeks
Pitfall 1: Value Pricing Approach
P2P Confidential 12
Hypothesis WorkshopFew Hours - 1
Day
Refinement Workshop
<< 1 Day
Cross-Functional Team Cross-Functional Team
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Hypothesize with a cross-functional team.
©P2P Cannot be re-produced or transmitted in any form without the permission of Price to Profits Consulting
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Market/Product
Manager*
SalesTechnology:Application / Service
Facilitator: Pricing?
Designated Leader:?
Pitfall 2: Articulating your ValueSupplier-Centric
P2P Confidential 14
Your Features
Financial Value
Enables Better Mixing
$0.50/lb. Savings
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Articulating your value must be customer-centric.
P2P Confidential 15
Your Features
Customer Benefits
Value Drivers
Financial Value
Enables Better Mixing
10% Less Product Needed
Reduced Cost
$500,000/yr.Savings
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$0.50/lb5
Our
Feature
Customer Benefit(Detractor)
Value
Driver
Calculation Value $
(Profits)
Value
$/unit
Better
mixing
10% Less product
needed
Reduced
costs
= 10% less * $5M of product $ 500M $0.50/lb.
Pitfall 3: The Calculation
Does math follow the
benefit / value driver?
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Pitfall 3: The Calculation
The Problems…
• Assumptions not clear
• Units not clear/consistent
• Bad format to modify/leverage
©P2P Confidential 17
Assumptions Units Amount ValueOur volume lb 100,000
Rework Improvement % 10%
Customer Volume lb 1,000,000
Cost of rework $/lb 0.25
Customer Benefit $ 25,000$
Value / unit of our product $/lb 0.25
Calculation: =C4*C3*C5
= 1,000,000 lbs Fin. goods X 10% Improvement X 0.25 $/lb
Pitfall 4: Market Validation
©P2P Confidential 18
• Ineffective validation process
• Reluctance to validate• Fear or uncomfortable• Belief customers will not tell them anything
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Validation Tips
©P2P Confidential 19
Benefit Focused
- not Price
Hypothesis Driven – not open ended only
Beyond Buyer / Loyal
Customers
- not price buyers
Technical/Marketing
– not sales only
Comfortable with
Tension
- not defusing tension
Key Data / Ballpark – not all assumptions
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Pitfall 5: Sharing the Value
©P2P Confidential 20
3.00
0.200.40
0.50
5.00
9.10
0.00
4.80
1.42
2.88
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
Price of NBA Higher Growth Less Rework Faster Processing Less Ingredients Indifference price Value for customer New target price
Unit Price6.22
5.00
9.10
6.22
Higher Purity
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% share capture depends on customer sensitivities
©P2P Confidential21
Unfavorable (<50% Share) Favorable (50% or more)
Certainty
Speed
Risk
Switching Cost
Fairness
High
Fast
Low
Low
Perceived Fair
Questionable
Multiyear
High
High
Perceived unfair
Default: 50/50
The 8 Common Pitfalls
©P2P Confidential 22
Value/Price Setting
Value Marketing & Selling
Value Negotiating
8. Sustainability / Leverage
1. Business Approach
2. Value Articulation
3. Calculation
4. Validation
5. Share Capture
6. Influencing Perception of
Value7. Skills & Confidence to Win
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Pitfall 6. Influencing Perception of Value To often I see…
©P2P Confidential 23
Market or
Product
ManagementSales
Example: Better but not good enough!Supplier centric & not quantified
Customer-Centric & Quantified
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Users highly influence decision makers.
Decision Maker / Procurement
Users / Influencers
1. Widespread Support
…Help them Win 2. Benefits / value to them3. Helps navigate alternatives4. Teaches me valuable insights
Source: The Challenger Seller by Brent Adamson
Pitfall 7. Negotiating with Confidence & Skill
©P2P Confidential 26
80% of
Companies…75% of Sales…
…believe they’re more expensive.
…believe the buyer has more power.
“I only care about price! You’re higher priced! Your value is no different!
I will switch suppliers for price!”
Smart Professional Buyers
Sources: Simon Kucher & Bay Group
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Strong price negotiation skills are critical.
©P2P Cannot be re-produced or transmitted in any form without the permission of Price to Profits Consulting
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Confidence, Courage
& Conviction
95% of Sales…
…self-rate their skills as mediocre / weak.
Price Negotiation
Skills
Sources: P2P 2019 Survey
Case Study 2: OEM Customer(Modified for teaching purposes)
©P2P Confidential 28
Situation Background Action
• $2 Million Account
• Customer threatens to
switch suppliers
• Product is superior
• Sole supplier for years
• New price $1.05/lb.
What’s the unintentional consequence of their pricing action?
NBCA$1/lb.
Added Value$2/lb.
New Price
$1.05/lb.
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Your pricing power is often higher than you think.
©P2P Confidential
Pricing Power
Pricing Power
Pricing Power
…
Smart discount decisions give up the least price and do so with minimal impact to market price.
©P2P Confidential 30
Pricing Power
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Pitfall 8: Sustaining the Change
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0 10 20 30 40 50 60 70 80 90 100
MAKE IT LAST
SYSTEMS & STRUCTURES
RESOURCE FOR SUCCESS
LEADING THE CHANGE
Change Management Profile: Success versus Failure
Success FailureSource: Modified/simplified from Six Sigma Academy with P2P input
Unwilling to Risk
Volume
Dedicated Pricing
Resource
Lack of System
Courage, Skills &
Incentives
Interested in learning more.
©P2P Confidential 32
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Thank You!
Joanne M Smith
Price to Profits Consulting
Author: The Pricing and Profit Playbook
Author: The Price Negotiation Playbookwww.price2profits.com
LinkedIn: smithjoannem
484-459-0166
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