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Strategic Pricing Associates (SPA) Overview Jan-2014

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Information about Strategic Pricing Associates (SPA) Overview Jan-2014
Business & Mgmt

Published on February 28, 2014

Author: StrategicPricingAssociates

Source: slideshare.net

Description

SPA is the leading provider of pricing analytics to complex companies of all types: manufacturing, distribution, equipment, services, and software/technology products. Since 1993, we’ve built a strong platform of proprietary analytics to quickly and efficiently help companies convert their own invoice data into pricing architectures that maximize their pricing performance and competitive position. Our typical client applies our pricing architecture and improves profitability by two to four percent of sales: $2 to $4 million per $100 million of affected revenue. The benefits are staggering; and they are typically accomplished in less than 90 days.
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Overview of Strategic Pricing David S. Bauders All Rights Reserved david.bauders@strategicpricing.com 216.536.2800 www.strategicpricing.com Copyright 2013 Strategic Pricing Associates, Inc.

Strategic Pricing Associates, Inc. Overview •  •  SPA Was Founded in 1993 SPA has Broad, Deep Experience & Success in Pricing •  Led Parker Hannifin CEO’s worldwide pricing initiative over six years across 90 manufacturing units and 30 trading units: CEO attributed impact of over $800m •  Distributor/Dealers: ThermoFisher Scientific; Grainger; Wesco; OneSource; Industrial Distribution Group; Finning; Boundtree Medical; Famous Supply; Valin •  Over 200 Manufacturers: ExxonMobil, GE, Rockwell Automation, Mitsubishi/ Caterpillar; American Standard, Sherwin Williams; ICI/Glidden; BASF; Pella; Dover; Tyco; Akron Brass; Atkore •  Over 350 Industrial Distributor Businesses, with Strategic Partnerships •  Industrial; Electrical; Plumbing/HVAC/Building Products; Tools; Paper/Packaging; Chemicals; Medical; Fluid Power; Equipment Dealers •  Partnerships with Parker Hannifin, ExxonMobil, Mitsubishi/Caterpillar, Rockwell Automation, Pella, Activant •  Exclusive provider of pricing analytics to Epicor’s ERP platforms, such as Eclipse, Prophet 21, Prelude; over 4200 distributors Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 2

Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 3

Pricing Concepts Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 4

Why Strategic Pricing Management? •  Pricing is the essential discipline of converting customer value into shareholder value •  Massive investments by manufacturers and their •  distributors create value for customers Strategic Pricing Management maximizes the return on those investments, while recognizing competitive realities in the marketplace •  Every revenue $ results from pricing decisions •  Pricing has disproportionate impact on •  profitability • 2% variation = $ 2 million per year per $100 million in revenue Flows through directly to the bottom line Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 5

How Profit Variables Impact a Manufacturer’s Operating Profit Assumes 10% ROS, 25% Ave GM, 15% Ave Overhead SP 2% 20% (1) Increase Selling Price by 2% 2% Increase in Selling Price = 20% Increase in Net Profit 2% Volume 15% (2) Increase Volume by 2% 2% Increase in Volume = 15% Increase in Net Profit 2% OE (3) Reduce Operating Expenses by 2% 3% 2% Decrease in Operating Cost = 3% Increase in Net Profit 2% COGS (4) Reduce Cost of Goods Sold by 2% 15% 2% Decrease in COGS = 15% Increase in Net Profit The Most Powerful Profit Lever Is Pricing Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 6

How Profit Variables Impact a Distributor’s Operating Profit Assumes 4% ROS, 30% Ave GM, 26% Ave SG&A SP 2% 50% (1) Increase Selling Price by 2% 2% Increase in Selling Price = 50% Increase in Net Profit V 2% (2) Increase Volume by 2% 15% 2% Increase in Volume = 15% Increase in Net Profit 2% OE (3) Reduce Operating Expenses by 2% 13% 2% Decrease in Operating Cost = 13% Increase in Net Profit 2% COGS (4) Reduce Cost of Goods Sold by 2% 35% 2% Decrease in COGS = 35% Increase in Net Profit The Most Powerful Profit Lever Is Pricing Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 7

Pricing Impact Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 8

Why do companies struggle to maximize price performance? •  Cost-Plus Mentality •  Unstructured discounting •  Complexity •  # Customers: thousands •  # SKUs: tens of thousands •  Equals millions of potential pricing permutations •  Difficult to set up and execute an effective pricing architecture •  Various systems issues and data weakness •  Difficult to measure performance, evaluate •  performance Lack of Training, standards Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 9

Price Indexing: Market Segmentation •  •  •  •  •  •  SPA assists clients in establishing market segmentation and customer size structures for purposes of pricing analysis •  To reflect common value-in-use and competitive coverage characteristics Typically half a dozen key vertical market segments •  Examples: Contractor, OEM, User, Industrial, Reseller, Gov’t Typically 5 customer sizes per vertical segment •  Tiny, Small, Medium, Large, Huge Result: each customer is assigned to a peer group based on market segment and customer size •  Eg, Small Contractor, Medium User, Small Reseller, Large OEM, etc. Client submits invoice data for pricing analysis We then perform comparative price analysis using our proprietary indexing methodology Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 10

Price Indexing •  Compare each customer’s price on any given product or service to the prices paid by customers in the same peer group •  •  Peer groups reflect competitive coverage and general price sensitivity Indexing can be done at the individual product/ service (sku) level or at the customer’s basket level Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 11

Price Index Methodology Type/Size Price Index Customer’s SKU-Level Index Price Paid by Customer A for Product 1 Avg. Price Paid by A’s Group for Product 1 0.90 = 10% less than Peers 1.10 = 10% more than Peers Customer’s Actual Sales Customer’s Overall Index What Customer’s Sales would be at Peer Group’s Average Price for Each SKU Example: Customer Actually Paid $9,000 for all SKUs Customer Would Have Paid $10,000 if He Paid Average Price for Each SKU Customer’s Overall Index = 0.90 Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 12

COMPLEX COMPANIES FAIL TO CAREFULLY MANAGE PRICING 1.0 = Average for Customer’s Type Small Customers Getting Lowest Prices Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 13

9 Companies’ Scatter Plots Company 1 Company 2 Company 3 Company 4 Company 5 Company 6 Company 7 Company 8 Company 9 Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 14

Core vs. Non-Core Pricing •  •  Core products are those at the top of each customer’s market basket •  •  •  •  •  Highest sales $ High in visibility High in incentive to shop for price Competitors most willing to quote prices Customers buy more frequently Non-Core products are those tag-along products at the bottom of each customer’s market basket •  •  •  •  •  Low in sales $ Low in visibility Low incentive to shop for price Competitors overlook Customers buy infrequently Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 15

Pricing Sensitivity (Statistical Model) Core A Highest Sensitivity Core B High Sensitivity Non Core C Non Core D Low Sensitivity Lowest Sensitivity Price adjustments limited to bottom 50% of customer sales Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 16

Core Versus Non-Core: Everyday Examples Environment Core A/B Non-Core C/D Gas Station Gasoline Lottery Tickets, Beer, Cigarettes, Candy Hotel Room Rate Mini-bar, restaurant, internet access, faxing, gift shop, room service Football Game Ticket Price Parking, Beer Price, Souvenirs Sam’s Club End Caps, Household consumables: light bulbs, batteries, cleaning supplies, major grocery groups like milk, beer, soda; frequently replenished items Odds & Ends, the rest of the store Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 17

Thoughts About Pricing •  •  •  •  •  •  •  Pricing is a “contact sport”; if your uniform isn’t dirty, you weren’t in the game Don’t build your strategy around your exceptions: the best policies will have exceptions; the key is to manage/limit them The optimal level of pricing complaints is not 0; otherwise you are not pricing to resistance Use data to make decisions Price pressure usually indicates a lack of differentiation between you and your competitors: What do you have to do differently to price to value? Focus on reducing the price sensitivity of your accounts over time You don’t have to be perfect to win Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 53

Next Steps •  •  Please visit the SPA website: www.strategicpricing.com Take A Free Pricing Opportunity Profile : www.strategicpricing.com/offer/profile/ •  •  Upcoming Free Events: Webinars held several times per month; check SPA website •  SPA Strategy Seminars •  Full-day seminars, held several times per year in cities worldwide; check SPA website Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 54

Calculating Pricing Potential in Your Businesses •  Gross Revenues, less: •  Fixed-contract pricing beyond 1 year •  Equals “Net Revenue in Play” •  Times Impact Percentage: •  1 percent: •  2 percent: •  3 percent: •  4 percent: low estimate conservative estimate good estimate excellent performance Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 55

Summary •  The current economy requires urgent action to develop a pricing architecture and compensating pricing layers •  Strategic pricing is a big opportunity for manufacturers and distributors, generally 2+% of revenue •  •  Can improve a company’s net profitability by 20% or more The drivers of the opportunity are clear •  •  Cost plus mentality and sales rep discounting practices Complexity of product lines, customer base •  To be effective, a pricing program needs to be data-driven, to translate strategy into actionable plans •  Long-term commitment; pricing czar; executive sponsorship; persistence; and channel engagement are keys to success •  Pricing is a specialized discipline where expertise has huge payoff in impact and speed of execution Copyright 2013 Strategic Pricing Associates, Inc. strategicpricing.com 56

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