B2B Price Guidance with Impact: putting the pieces together
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In B2B sales where there is a negotiation, the sales person is setting or influencing the final price paid by the customer. The risk is that sales over discounts, not reaching the highest possible prices due to lack of knowledge or inappropriate incentives. In these cases, guiding sales to an appropriate price corridor can have a significant positive impact on realized pocket prices by avoiding unnecessary discounting. This presentation covers the key elements to implementing an effective price guidance process, including what type of price guidance to give, how to get the sales team’s attention, approaches to come up with the specific guidance, and how to ensure it all comes together in a sustainable way. This presentation will be useful for companies that want to ensure their negotiations are effective and well controlled.
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B2B Price Guidance with Impact: putting the pieces together
- 1. B2B price guidance with impact: putting the pieces together Ian Tidswell February 2017
- 2. © een Consulting GmbH 2 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: ian@eenconsulting.com
- 3. © een Consulting GmbH 3 Introduction • In B2B sales where there is a negotiation, the sales person is setting or influencing the final price paid by the customer • In these cases, guiding sales to an appropriate price corridor can have a significant positive impact on realized pocket prices by avoiding unnecessary discounting • This presentation covers the key elements to implementing an effective price guidance process: • What type of price guidance to give • How to get the sales team’s attention • Approaches to come up with the specific guidance • How to ensure it all comes together in a sustainable way
- 4. © een Consulting GmbH 4 Price guidance puzzle pieces What type of price guidance to give? What specific guidance to give? How to pull it all together? Why is price guidance important? How to get the sales teams to pay attention?
- 5. © een Consulting GmbH 5 Why is price guidance important? Why have price guidance specifically? • Sales people are not analytical: dashboards won’t cut it • Not pricing experts: need to guide them appropriately but allow for exceptions • “Anchoring”: sets expectations for price performance • Primary way for product marketing to influence sales during negotiations Price guidance needed when sales have a role in price negotiations
- 6. © een Consulting GmbH 6 Price guidance puzzle pieces What type of price guidance to give? What specific guidance to give? How to pull it all together? Why is price guidance important? How to get the sales teams to pay attention?
- 7. © een Consulting GmbH 7 What type of price guidance to give? • Two options: • Individual elements • Key price point(s) 1 2 222 1 1 1 • Price point(s) recommended • Simpler to manage that individual waterfall elements • Sales flexibility to tune offer details to customer preferences • Adjustments can be managed in other ways (e.g. segment rebates, campaigns) 2 Price Waterfall
- 8. © een Consulting GmbH 8 Which price points to focus on? • Pocket Price is usually the best option • Controlled or influenced by sales • Strongly aligned with Economic Value Added • Net Price can be an option • If sales does not influence non-cash costs (e.g. fixed payment terms) • Non-cash costs are very hard to measure • Invoice Price may be an additional control point given the transparency/risk of price erosion
- 9. © een Consulting GmbH 9 How to control the Pocket Price? • Price corridor, consisting of: • Target price • Approval levels (e.g. sales manager, sales head, country price manager) • Target is key component • To create upward price tension • As basis of price realization metrics • No more than 3 approvers • More slows the process too much • Last approver can address special concerns e.g. legal, risk assessment • Basis for Price Realization Score: • Target price = 100 • Sales rep floor = 50, etc.
- 10. © een Consulting GmbH 10 Price guidance puzzle pieces What type of price guidance to give? What specific guidance to give? How to pull it all together? Why is price guidance important? How to get the sales teams to pay attention?
- 11. © een Consulting GmbH 11 How to get the sales teams to pay attention? Key Success Factor Details Make it a foundational part of the sales process mandatory • Avoid leaks in all negotiations, even the smallest 20% that drive price erosion Price Realization Score adopted as a core management metrics • Price realization score enables comparisons across customers and products “Reasonable” guidance owned by product marketing • Not skewed by optimistic targets, politics, bad data Context specific & timely for sales • Must add-value to sales • Adjust quickly when market changes • Feedback loop to continuously improve May require technology to support • Enables scale, process discipline, data quality, closed-loop feedback Will require a big Change Management effort • Fundamental change to how commercial performance measured • Do it right the first time: once established will be robust process • Sales managers are the key role
- 12. © een Consulting GmbH 12 Price guidance puzzle pieces What type of price guidance to give? What specific guidance to give? How to pull it all together? Why is price guidance important? How to get the sales teams to pay attention?
- 13. © een Consulting GmbH 13 What specific guidance to give? Price guidance should be based on: Pricing Power… …for a given segment… …based on strategic goals, experience, and data.
- 14. 14© een Consulting GmbH Base price guidance on the pricing power by customer segment while respecting strategic goals Product&Service ValueDifferentiation Reduced Cost Direct Added Value Less Tangible Added Value • Features that make the product more attractive to end-users • Raises the “willing to pay” by indirect means, e.g. more reliable, simpler, etc. • Reduces the cost to supply the end product Value Differentiation Competitive Intensity Customer perceived performance Customerperceivedprice Value advantaged Value disadvantaged • Brand position, strength • Number of competitors • Market shares • Channel influence • Supply/Demand situation • Supply coverage Customer Segmentation Strategic Goals Pricing Power
- 15. © een Consulting GmbH 15 Segmentation can increase the value you create & capture • Different segments may have very different willing-to-pay • Segmentation can get very complex: what really matters? • Varying prices requires “fences” between segments, e.g. – Product branding, specifications, bundles, services – Regulatory approvals – Natural market differentiation • Start simple, and add elements based on experience and skills Product End-user Channel Strategic importance Application Size Differentiation Location Profitability Revenue rank Cost-to-serve Value-add / services Profitability Market power Market power Behavioral Behavioral
- 16. © een Consulting GmbH 16 Process & tactics for determining the guidance Strategic goals •“Must wins” •Long-term objectives •Available resources •Risk profile Rules based •Based on goals and analysis, e.g. •Level of sales discretion •Minimum margins Historical transaction based •Recent prices for the segment •Scrutiny of low-price tail •Beware of misleading exceptions! “Big data” patterns based •Requires great data •Beware of spurious patterns (e.g. sales rep behaviors) Increasing complexity, effort, skills, risk
- 17. © een Consulting GmbH 17 Price guidance puzzle pieces What type of price guidance to give? What specific guidance to give? How to pull it all together? Why is price guidance important? How to get the sales teams to pay attention?
- 18. © een Consulting GmbH 18 How to pull it all together Get buy-in for the price corridor concept and implement The goal: it becomes a core day-to-day process Big one-time push on the change management Price Realization Score becomes a key metric Make the guidance relevant, actionable, continuously improve Start simple with basic segmentation and data- influenced rules, not data driven rules! Learn by doing: add sophistication gradually Consider a price decision support systems Scale up to address the whole portfolio (incl. the leaky bottom 20%) Facilitates collaboration across the organization Improve responsiveness Improves process integrity, sustainability Build a clean(er) data set
- 19. © een Consulting GmbH 19 Summary • Potential to add huge value • Not dependent on strategy • Once foundation in place guidance can be improved over time • Not easy, but well worth it! What type of price guidance to give? What specific guidance to give? How to pull it all together? Why is price guidance important? How to get the sales teams to pay attention?