Presentation Vendavo Event Theo Slaats
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The document discusses the challenges companies face in pricing strategy, noting that issues with price setting and execution can lead to significant profit losses, typically between 1-3% of sales. It emphasizes the importance of sophisticated pricing technology and maturity models for effective pricing that aligns with business goals, and outlines key principles for implementing these solutions. The document also proposes assessment strategies to identify pricing improvement opportunities and measure pricing maturity compared to best practices.
Presentation Vendavo Event Theo Slaats
- 1. Pricing and Profitability ManagementPricing technology as enabler for impacting business and bottom-lineBrussels, 28th October 2009
- 2. Problems with both price setting and price execution cause many companies to lose profit every year, typically of equal value to between 1 to 3% on sales1Price settingPrice executionLoss of profit:between € 10M and € 30M*Unexplainable variances in profit margins, due to:Unconditional discounts and trade terms
- 3. Downward pressures on prices
- 4. Making pricing actionable in day-to-day commercial operationsUnder- and over pricing, due to:Large number of price points
- 5. Price points evolve over time
- 6. Limited means to determine optimal price points* Per 1 Billion € of revenue and rule of thumb profit loss of 1-3% on sales.97% of the Fortune 1000 companies suffer from this type of profit loss-AMR research-
- 7. A common pitfall is that pricing improvement initiatives started by companies do not fully deliver the targeted impact on business and bottom-line2Profit Impact (M €)Targeted profit impactTimeActual profit impact
- 8. 3Less VarianceMarginCustomer CategoryBetter DealsMarginCustomer CategorySuccessful pricing improvement initiatives involve the development and orchestration of your different capability elements Deloitte Pricing Maturity model ®ElementsExamples of advanced maturityPrice ImpactStrategyProfitability analysis is used to develop new strategiesAssignmentDiscounts and/or extra services are assigned based on impact on customer profitability, (Pay for performance)Organization StructureClear responsibility for pricing decisions and proactive guidance of sales employees in pricing decisionsRewardsBonuses for sales employees vary with the level of profitability contributed by each individual transactionPolicy & ProceduresManaging prices at transactional level asks for guidelines for employees working and bearing responsibility at that levelReports & ToolsSystems are available for sales employees and allow real-time customer profitability reportingStrategyOrganizationProcessTools
- 9. Depending on the complexity of your business and the required level of your pricing maturity, pricing technology is often a crucial enabler4Profitability InsightProfitability MngtEvolve: Incorporate insights in processesEvolve: Integration scalabilityEvolve: Complexity maintainabilitySpreadsheet modelsSpecialist costing softwareCosting fully integrated within corporate systemsInsights fully integrated in corporate processesExcelPhase 1Phase 3Phase 2Key evaluation criteriaNumber of price points
- 10. Evolution of price points over time
- 11. Complexity of discounts and trade terms
- 12. Downward pressures on prices
- 13. Required level of development and orchestration of different pricing capability elementsLOWHIGH
- 14. Sophisticated pricing technology solutions like Vendavo enable you to support all aspects of pricing5Less VarianceMarginCustomer CategoryBetter DealsMarginCustomer CategoryPrice SettingPrice ExecutionPrice ImpactProfit Analytics & Price ManagerManagement of the Price WaterfallInputPricing ScienceDependenceManagement of the Price StrategyDeal ManagerManagement of Customer & Deal
- 15. The Deloitte approach for a pricing technology implementation includes 3 streams: Value Capturing, People and Solution * Per 1 Billion € of revenue and rule of thumb profit loss of 1-3% on sales.6
- 16. 7Based on our experience, we can clearly identify some key principles regarding the implementation of sophisticated pricing technology solutionsChange Management is a key success factorValue driven implementation approachPricing maturity is a key success factorKeep It Simple where possible and focus on quick, tangible results
- 17. So what can you do to get started?Understand how much money you leave on the tableDeloitte Value Capture assessment:Identify your potential pricing improvement opportunities -alist of financially quantified and prioritised (quick) wins- based on your real live data
- 18. Validation workshops together with your business to discuss the findings + suggestions for concrete actionsteps regarding their transformation into real operational resultsUnderstand how mature you are in the different pricing capability areas and in what areas you should improveDeloitte Maturity assessment:Measure your pricing maturity compared to best practice + qualify and quantify improvement areas
- 19. Validation workshops together with your business to discuss the findings + suggestions on required maturity end-state and transformation approach8
Editor's Notes
- #3: Price setting: Determining profit-maximizing prices for products and/or servicesPrice execution:Maximizing margin by managing leakage of on- and off-invoice trade termsMany companies recognize astrong (business) case for investing in the resolution of these problems.
- #4: To actually realize targeted profit impact:Change management: embed pricing in your organisation on operational level as part of your commercial routine (instead of high level and ad-hoc actions)Increase your pricing maturity. Have the right combination of pricing capabilities in the right amount.
- #5: Case examplesStrategy: sustainable profitability in certain commodity market segment not possible. Detect how to fix or which market segment to refocus on, e.g. specialties segment. Better dealsOrganization structure, Policies, Reports: supporting, channeling and monitoring the realization of different policies and procedures Less varianceRewards: bonuses linked to margin instead of volume/revenue Better deals
- #6: -When ranking high on (some of) the key evaluation criteria, one should seriously consider a sophisticated technology solution, like Vendavo handling more complexity with less effort-Almost every multinational will require a strong and integrated pricing technology solution (even in the state of developing maturity)
- #7: Integrating competitive environmentMarket, customer and pricing segmentationPrice optimizationPricing governance strategy (NLP, ELP, Target pricing)Value based pricingStrategy and tactics for aggregated bucketsDirective and “ex ante” guidelinesCustomer category levelMostly about “freeing” up cashChange is more about adoption and complianceStrategy and tactics on transactional levelFlexible and interactive approach within consistent frameworkCustomer specific levelMostly about “creating” extra cashChange is ultimately about “internalization” of new way of working of account management and sales at the customer interface
- #8: Key assumptions:Harmonized waterfallClean and structured data
- #9: Value driven implementation approach-Develop a solid and agreed Business Case framework (Topic of Deloitte’s afternoon workshop)-Focus on bringing added value for Sales in “on the field” price negotiationsKeep It Simple where possible and focus on tangible results-Complexity needs to be gradually built in line with the maturity-Start with manageable scope-Quick implementation of Pricing AnalyticsChange Management is a key success factor-Objective is to enhance user adoption but also to ensure the realization of the different pricing opportunities by changing the people’s mindsets and (risk) behaviours-Requires formal and active commitment from Top Management