Post on 09-Mar-2018
© 2016 Strategic Pricing Associates, Inc. 1
General Overview
© 2016 Strategic Pricing Associates, Inc. 2
About Strategic Pricing Associates
Driving sustainable improvements in Enterprise Value competitive
success through Profit Maximization
• Founded in 1993
• World-Class Analytics & Training
• Integration of Pricing Analytics to SAP, Oracle, Infor and Epicor
(Eclipse, Prophet21, Prelude)
© 2016 Strategic Pricing Associates, Inc. 3
About SPA™
Over 200 Manufacturing Businesses:
• Parker Hannifin, GE, Rockwell, ExxonMobil, Tyco Electronics,
Dover, St. Gobain, Altramotion, Mitsubishi-Caterpillar
Over 400 Distribution Businesses:
• Grainger, Cardinal Healthcare, ThermoFisher Scientific, Industrial
Distribution Group, OneSource, Win Wholesale, Johnstone Supply
Case Studies and Video Testimonials
at StrategicPricing.com
And at spasigma.com
© 2016 Strategic Pricing Associates, Inc. 4
…boosted operating income by $200 million
…net income soar to $673 million last year from $130 million
…return on invested capital has risen from 7% to 21%
© 2016 Strategic Pricing Associates, Inc. 5
Everything You Wanted to Know
About the Battle for Margin
• It’s about Setting Price and Getting Price
• Setting means determining the optimal price and cost and deploying it to the sales rep
• Getting means arming the sales team with the negotiation skills to achieve the Set price
• To master the opportunity, you have to do both
• You need to get into the heads and the hands of your sales team
• Train them
• Give them easy-to-use tools that reinforce the training
© 2016 Strategic Pricing Associates, Inc. 6
SPA Portfolio Approach
Fully leverage SPA’s portfolio to deliver maximum profits
SPA Analytical, Workflow & Reporting Tools
Negotiation & Sales Training & Retention
Strategic Costing
Strategic Pricing
Negotiation
Selling Skills
Set
Tools
Get
Tools
SPS
SCS
Cloud
Tools
© 2016 Strategic Pricing Associates, Inc. 7
Maximize
Profitability
Contract Tools &
Vendor Tools
Negotiation & Sales
Training & LMS
Strategic Costing
Reporting:
Profit Finder
Visualize
Identify
Monitor
Measure
Price Banding
Contract Pruning
Purchasing/Rebate Optimization
Decision Making Tool to improve future
contract structure and margin
Grow and retain negotiation and
sales skills
Outside & Inside Sales
Product Managers, Engineers
Buyers
30 day path to increasing margins by 200 bps
Data Aggregation
Industry Benchmarking and
Market Insights
Strategic Pricing Solution
180 bps in 30 Days
© 2016 Strategic Pricing Associates, Inc. 8
The Pricing Opportunity
• Price to Value, Not Cost
• Get the Optimal Price on Each Product to Each Customer
- Balancing Profitability vs. Competitiveness
- Focus Discounting Where It Pays Off
- Get Premiums on Less-Sensitive Products and Customers
© 2016 Strategic Pricing Associates, Inc. 9
The Pricing Reality
Sales Force Issues
• Heavy “Peanut Butter” Pricing Orientation
• Little or No Training, Analytics, or Tools to Support Sales &
Negotiation Decision-Making
• Little or No Training, Analytics, or Tools to Support Purchasing
• Sales Reps who Discount rather than Sell
• Weakly Defined Process and Metrics
• Mis-Aligned Incentives
Bottom Line:
Lots of Lost Price and Profit - Generally 2 - 4% of Sales
© 2016 Strategic Pricing Associates, Inc. 10
How Profit Variables Impact a
Distributor’s Operating ProfitAssumes 4% ROS, 30% Ave GM, 26% Ave SG&A
(1) Increase Selling
Price by 2%
(2) Increase Volume
by 2%
(3) Reduce Operating
Expenses by 2%
(4) Reduce Cost of
Goods Sold by 2%
15%
V 2%
2% Increase in Volume = 15% Increase in Net Profit
50%
2% Increase in Selling Price = 50% Increase in Net Profit
SP 2%
13%
2% OE
2% Decrease in Operating Cost = 13% Increase in Net Profit
2% COGS
2% Decrease in COGS = 35% Increase in Net Profit
35%
© 2016 Strategic Pricing Associates, Inc. 11
SPA Portfolio Approach
Fully leverage SPA’s portfolio to deliver maximum profits
%
Profit
Advanced Pricing
Analytics
Strategic Pricing
And Negotiation
Training
Strategic
Costing and/or
Negotiation
Training
SPA reporting and field tools
1.5-2.0% 1.5-2.0% 5%+
Negotiation Training & Retention
© 2016 Strategic Pricing Associates, Inc. 12
Potential Earnings Impact
Impact - Additional GM%
Revenue 1% 2% 3% 4% 5%
$5,000,000 $50,000 $100,000 $150,000 $200,000 $250,000
$10,000,000 $100,000 $200,000 $300,000 $400,000 $500,000
$25,000,000 $250,000 $500,000 $750,000 $1,000,000 $1,250,000
$50,000,000 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000
$100,000,000 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $8,000,000
$250,000,000 $2,500,000 $5,000,000 $7,500,000 $10,000,000 $12,500,000
$500,000,000 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000
$1,000,000,000 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000
$5,000,000,000 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000
© 2016 Strategic Pricing Associates, Inc. 13
The potential enterprise value (at 7x multiple) impact to your business
Impact - Additional GM%
Revenue 1% 2% 3% 4% 5%
$5,000,000 $350,000 $700,000 $1,050,000 $1,400,000 $1,750,000
$10,000,000 $700,000 $1,400,000 $2,100,000 $2,800,000 $3,500,000
$25,000,000 $1.750,000 $3,500,000 $5,250,000 $7,000,000 $8,750,000
$50,000,000 $3,500,000 $7,000,000 $10,500,000 $14,000,000 $17,500,000
$100,000,000 $7,000,000 $14,000,000 $21,000,000 $28,000,000 $35,000,000
$250,000,000 $17,500,000 $35,000,000 $52,500,000 $70,000,000 $87,500,000
$500,000,000 $35,000,000 $70,000,000 $105,000,000 $140,000,000 $175,000,000
$1,000,000,000 $70,000,000 $140,000,000 $210,000,000 $280,000,000 $350,000,000
$5,000,000,000 $350,000,000 $700,000,000 $1,050,000,000 $1,400,000,000 $1,750,000,000
IMPACT:
© 2016 Strategic Pricing Associates, Inc. 14
The Sales & Purchasing Challenge
• Sellers have little or no training on value-selling or negotiation
skills
• Vendors and Insurance side are heavily trained and focused
• Vendor pricing is varied and creates purchasing opportunities
• Buyers have little or no training or tools to support efficient
buying
Bottom Line:
If you don’t continuously train, manage, and equip your vendor-
and customer-facing staff, you lose margin dollars.
© 2016 Strategic Pricing Associates, Inc. 15
• Simple: Cut costs every year
•Buy from Best Supplier at Worst Supplier’s
Prices
• Sell More at Any Price above Pain Point
• Carefully prepared RFP to “commoditize”
sellers
• Buyer’s RFP drives discussion focused on
price
•Little preparation
• Recurring training on Negotiation
Effectiveness
•Negotiation is the full-time responsibility of
the purchasing agent
• Lack of Training and Tools
•Price negotiation is uninformed &
uncomfortable part of reps’ responsibility
• Systems to collect supplier bids and
purchase history to leverage in negotiation
• Limited knowledge of market prices or cost-
to-serve
• Procurement is measured on reducing unit
costs
• Sell more volume above Pain Point
Procurement is a strategic initiative to cut
costs & achieve advantage
Pricing is a reactive, tactical activity to
close deals at prices above Pain Point
Procurement Sales
Strategy
Process
People
Information
Metrics
The Negotiation Inbalance:
A Buyer’s Market
© 2016 Strategic Pricing Associates, Inc. 16
The Analytical Challenge
• Significant Marketplace Complexity
1000s of Products & 1000s of Customers
• Lots of People Making Pricing Decisions
• Lots of Guesswork
• Millions of Pricing Possibilities
Example: 5,000 Customers x 10,000 SKUs = 50 million potential
price permutations
Bottom Line: If you can’t define what value pricing looks like in a
complex environment, you won’t have principled pricing.
© 2016 Strategic Pricing Associates, Inc. 17
The Pricing Outcome
Pricing Chaos:
• Guessing Game
• Underpriced Customers
• Underpriced Products
• Sales Force Confusion
• Errors/Frustration
• Sloppy Processes
• Customers Who Beg
• Lost Price and Profit
© 2016 Strategic Pricing Associates, Inc. 18
SPA Analytics
Data-Driven Pricing Standards
Recommended Mark-Ups/Discounts/Price Bands
Product Sensitivity Ratings
Metrics & Compensation Statistics
Management’s Market
Assessment & Reviews
Invoice Data
Customer & Product
Segmentation
© 2016 Strategic Pricing Associates, Inc. 19
Company 1 Company 2 Company 3
Company 4 Company 5 Company 6
Company 7 Company 8 Company 9
9 Companies’ Pricing Patterns
© 2016 Strategic Pricing Associates, Inc. 20
SPA’s Multivariate Sensitivity Profiling
SPA analyzes client invoice data, looking at customer product baskets and customer order patterns by product
SPA analyzes key predictors of price sensitivity
• Order frequencies, volumes, repeatability
• Customer’s relative spend by product
• Distribution of many properties by customer and across groups of customers
Result: Recommended price premium map to SKU’s and vendors by individual customer or customer group
© 2016 Strategic Pricing Associates, Inc. 21
The SPA Pricing Cube™
Product Price Sensitivity Profiling
Core A
Core B
Non -
Core C
Non -
Core D
Highest Sensitivity
High Sensitivity
Low
Sensitivity
Lowest
Sensitivity
Price
adjustments
limited to
bottom 50%
of customer
sales
© 2016 Strategic Pricing Associates, Inc. 22
The SPA Pricing Cube™
• Segmentation of Customers
• Profiling of Price Sensitivity
• Analysis of Pricing Performance
• Definition of Pricing Standards
• Pricing Metrics to Support Pricing
Processes and Compensation
Bottom Line: You make more money when you price smarter.
A Pricing Architecture that combines SPA’s Invoice
analysis with your knowledge of markets
© 2016 Strategic Pricing Associates, Inc. 23
World-Class Analytics:
The Ticket To Play
Without analytics and tools, it’s impossible to get sales force traction:
• You can’t define what good means across thousands of skus and
thousands of customers
• You can’t measure performance against a standard
• You can’t identify, investigate or remediate the defects
• You can’t explicitly align incentives
• Your process lacks executional control levers
Bottom Line: If you don’t define good pricing, you can’t hold
people accountable.
© 2016 Strategic Pricing Associates, Inc. 24
Strategic List Pricing and Strategic
Costing
© 2016 Strategic Pricing Associates, Inc. 25
The Strategic List Pricing
Opportunity
List less Discount factor drives sales rep pricing decision-making
The price differential necessary to incent switching from OE to aftermarket varies
significantly based on product tier, unit price, and transaction size
GM may have recently adopted a Dynamic Pricing Strategy that may differentiate
OE list price regionally or on other less visible attributes
The true cost-to-serve of thousands of products varies dramatically
High-volume, top-vendor, fast-turning products are efficient to serve
Low-volume, bottom-vendor, slow-turning products are costly to serve
Sales reps’ peanut-butter pricing approach typically applies fixed customer-level
discounts to products that differ dramatically in price sensitivity and cost-to-
serve
© 2016 Strategic Pricing Associates, Inc. 26
The Strategic List Pricing
Opportunity
Significant Marketplace Complexity
1000s of Products
A more strategic approach to costing your products can selectively lead sales
reps to higher profits without a change in behavior, generally 180 basis points
on affected revenue
$18,000 extra profit per $1 million of revenue
Approximately 7x ROI
Sold as a monthly subscription service delivered via SPA cloud portal
© 2016 Strategic Pricing Associates, Inc. 27
The Strategic List Pricing Solution
SPA has worked to develop a Strategic Pricing Solution (SPS) to implement Strategic List
Pricing for GM as well as non-GM pricing opportunities, even when list prices are not
published (via Parts Link, etc)
A data extract tool provides push-button export of required sales data (usually 12 months’
worth)
The service identifies appropriate list pricing based on the visibility/competitiveness of
the OE/product family, price sensitivity of the part number, and transaction/unit price
value
The service monitors GM’s fluctuating List Prices and infers List Prices in the event that
they are concealed, using industry price to cost ratios
The module tabulates gains applied to quantify impact
Bottom Line: A simple, elegant strategy to drive 180 extra basis points or more: $18,000
per $1.0 million of sales.
© 2016 Strategic Pricing Associates, Inc. 28
SPA’s Multivariate Sensitivity Profiling
SPA analyzes client invoice data, looking at customer product baskets and customer order patterns by product
SPA analyzes key predictors of price sensitivity• Order frequencies, volumes, repeatability
• Customer’s relative spend by product
• Unit Price Levels
• Distribution of many properties by customer and across groups of customers
Recommended costs and list prices per SKUResult:
© 2016 Strategic Pricing Associates, Inc. 29
The SPA Pricing Cube™
Product Price Sensitivity Profiling
Core A
Core B
Non -
Core C
Non -
Core D
Highest Sensitivity
High Sensitivity
Low
Sensitivity
Lowest
Sensitivity
Price
adjustments
limited to
bottom 50%
of customer
sales
© 2016 Strategic Pricing Associates, Inc. 30
SPS List Price Database
(Sensitivity Ratings)
© 2016 Strategic Pricing Associates, Inc. 31
Strategic List Price Premiums
Premiums/discounts vs. the currently active (client-selected) OE list price field; differentiated by vendor visibility, product sensitivity, and product unit price
The OE List Price is the Starting Point
The target discount off OE is variable based on the Visibility of the Product Family and Sensitivity of the SKU
The first layer increases the cost field by a “puff” factor. The increase is based on the OE/Product Family visibility and part number core status.
The second layer allows scales the premium up or down based on unit price of the item:• Higher premiums for low unit-cost items
• Lower premiums for high unit-cost items
© 2016 Strategic Pricing Associates, Inc. 32
Vendor/Family Visibility
Ratings
SPS provides an editable visibility indicator for each OE/product family
• Intended to describe how visible or competitive an OE’s prices are in the market place for each product family they provide• Quantitative and/or subjective judgment of the price sensitivity of the
vendor/family in the market place
Apply a Visibility Rating: Very High, High, Medium, Low, Very Low
© 2016 Strategic Pricing Associates, Inc. 33
OE/Product Family Visibility
Ratings
Provide a Competitiveness/Visibility indicator for each vendor/product family
• Very High
• High
• Medium
• Low
• Very Low
Very
High
20%
High
20%
Medium
20%
Low
20%
Very Low
20%
© 2016 Strategic Pricing Associates, Inc. 34
Strategic List Price Premiums Matrix
(internal list price, percent premium above usual
list price; scaled further by unit list price)
SKU Core
Status
Product
Family
Visibility
Core A Core B Non-Core C Non-Core D
Very High 0 0 0 0
High 0 0 0 0
Medium 0 2 4 6
Low 3 4 6 8
Very Low 4 5 7 9
© 2016 Strategic Pricing Associates, Inc. 35
The Strategic List Pricing Math
Exclude Top 2 Tiers of Vendors (40%)
• Just apply to Medium, Low and Very Low Visibility
Bottom 60% of each Revenue in Play, excluding the
OE/product families that are most sensitive
Strategically price 60% of revenue, typical impact is 300 bps
Typical Impact is 180 bps = 1.8 margin points
© 2016 Strategic Pricing Associates, Inc. 36
Strategic Costing Solution
Implement a new, Strategic Costing Solution to improve purchase
costs from vendors
SPA benchmarking data allow comparison cost shopping by part
number per sku
• Depends on sufficient subscriber data
Bottom Line: you can drive better margins from purchasing at
better prices: typically 200 basis points on purchases, or
$20,000 per $1 million of purchases
7x ROI
Sold as a monthly subscription service delivered via SPA cloud
portal
© 2016 Strategic Pricing Associates, Inc. 37
Pricing Impact
Cost of SPA
Your Profit
Margin Points
Earned
% of Revenue Priced Strategically
© 2016 Strategic Pricing Associates, Inc. 38
Negotiation Training and Sales Academy
© 2016 Strategic Pricing Associates, Inc. 39
Negotiation Training Program to…
• Train (and retain) skills for marketing and sales staff; purchasing staff
• Communicate Value and Negotiate Win-Win Deals
• Counteract Haggling and Special Terms giveaways
• Grow orders and deal size
• Conducted via in-person training sessions as well as online versions for
inside sales and for retention for all participants
- Testing, Games, Quizzes, Certification
- “Gamification” to monitor and incent acquisition and retention of skills
© 2016 Strategic Pricing Associates, Inc. 40
SPASigma for Outside Sales, Product
Managers, Engineers, Buyers
1-Day Seminars held in 31 Cities across North America
• SPA-developed curriculum led by former long-term expert negotiation
instructors
• Instruction, Case Studies/Role Playing, Tools, Coaching
Learning Management System platform to ensure long-term retention
• Monthly 1-Hour Webinar/Video with Exercises, Games, and Testing
• Best in Class platform accessible on any device
• Tracking of individual performance
• Certification: White Belt, Yellow, Green, Black, Master Black Belt
SPASigma Master Black belt
SPASigma Negotiation
August 2015
© 2016 Strategic Pricing Associates, Inc. 41
SPASigma for Sales,
Product Managers, Engineers, Buyers
• The Principles of Effective Negotiation
• How to Prepare for a Negotiation
• Reading the Other Party’s Economic and Behavioral Model
• Tactics to Improve Outcomes
• How to Win in the Toughest Competitive Situations
• How to Evaluate Bargaining Power
• How to Sell on Value not Price
• How to Grow the Deal
• Time-Proven Techniques to Create Win-Win
• Setting and Achieving Targets: You don’t hit a target you never set
• Managing Deadlocks
© 2016 Strategic Pricing Associates, Inc. 42
SPASigma Program for Retention
1-Hour Weekly Virtual Training Session
• Customer Profiling: Value Drivers and Pricing
Leverage
• 12 Customer Tactics to Beat You Up on Price
and How to Defeat Them
• How to Evaluate and Leverage the Buying
Situation
• Growing the Order to Diffuse Haggling
Sales Academy platform to ensure retention
• Monthly 1-Hour Webinar/Video with
Exercises, Games, and Testing
• Best in Class platform accessible on any device
• Tracking of individual performance
• Certification Levels & Recognition
© 2016 Strategic Pricing Associates, Inc. 43
SPASigma LMS
© 2016 Strategic Pricing Associates, Inc. 44
Negotiation Training and LMS
OUTSIDE and INSIDE Sales:
https://vimeo.com/spasigma
© 2016 Strategic Pricing Associates, Inc. 45
SPASigma Content Architecture
Negotiatio
n
Selling
Skills
V1 V2
3PT1 3PT2
Client
M1
Client
M2
Client’s
Proprietary
Training Info
Third Party/Compliance
Training Courses
And/or Presentations
Vendor
Product & Application
Training Programs
(Top 10 per Vertical)
SPASigma
Proprietary
Content
V3 V4
• Free Upload
• Monthly Bundled Access
• Wizard for Testing
• Free Upload
• ASA/AD/Imark Training Content
• Wizard for Testing
• ASA/AD/Imark Vendor/Application Content
• SPA, SPASigma Training
• Sandler Sales Training
• Retention and Certification/Gamification
Profitability
Training
© 2016 Strategic Pricing Associates, Inc. 46
Conclusion
Next Steps
© 2016 Strategic Pricing Associates, Inc. 47
SPA’s Comprehensive Solution
Incentives
Training
Process
Analytics
• SPA provides a long-term,
comprehensive, end-to-end solution
• World-Class Analytics; Process & Sales
Force Training; Incentives Guidance
• Proven, Broad and Deep Industry
Expertise: Over 600 Clients
• Manufacturer-Side and Distribution-
Side Expertise
• ERP Integration
• Superior Time To Results: Less Than
90 Days
• Most Efficient Staff Requirements: Two
to Four Weeks of Staff Time
© 2016 Strategic Pricing Associates, Inc. 48
SPA has developed a Strategic Pricing Program of training and related data services
• Training in the principles, strategy, and process of pricing
• Export data to SPA for analysis
• After review/modification, import pricing cube into your ERP
Client submits 12 months of invoice data to SPA for analysis to develop recommendations at the customer/product/service level
Client forms a pricing team to lead and maintain the process:
• Owner/General Manager, IT, Head of Sales, Pricing Manager or Controller
• Process typically takes two to four weeks of staff time over a 90-day period
The SPA Program
© 2016 Strategic Pricing Associates, Inc. 49
Thoughts About Pricing
• Pricing is a “contact sport”; but most of the contact is internal
• Train your customer-facing personnel on negotiation effectiveness
• Give your people the tools and skills to succeed
• Use data to make decisions; you need analytics and tools to drive
Strategic Pricing
• Define and measure your pricing processes
• You don’t have to be perfect to win
© 2016 Strategic Pricing Associates, Inc. 50
Summary
Big Opportunity: 2-4 Margin Points = 50%+ EBITDA Increase
Cost-Plus and Millions of Customer-Product Combinations Create Chaos
Training, Work Tools, Incentives, and Metrics drive Behavior
Use Big Data to translate Strategy into Actionable Plans
To be sustainable, learning must be continuous (therefore enjoyable) and tools must be part of the workflow
Pricing is a specialized discipline where expertise has huge payoff in impact and speed of execution
© 2016 Strategic Pricing Associates, Inc. 51
SPA Portfolio Approach
Fully leverage SPA’s portfolio to deliver maximum profits
%
Profit
Advanced Pricing
Analytics
Strategic Pricing
And Negotiation
Training
Strategic
Costing and/or
Negotiation
Training
SPA reporting and field tools
1.5-2.0% 1.5-2.0% 5%+
Negotiation Training & Retention
© 2016 Strategic Pricing Associates, Inc. 52
Negotiation Seminar
Measure
Outcome
Strategic Pricing Cube
Strategic
Costing
Start Here
Getting Started - The SPA Journey
SPASigma LMS
© 2016 Strategic Pricing Associates, Inc. 53
Next Steps
Step 1: Sign up for SPASigma Professional Negotiation Seminar
Two-for-One Credits for Q2 Seminars
Step 2: Onboard SPA Strategic Pricing Cube
Step 3: Onboard SPASigma Training & LMS to Arm Your Team
Step 4: Deploy Purchasing Optimization Tools
More info:
• David.Bauders@StrategicPricing.com
• www.StrategicPricing.com
• www.SPASigma.com
© 2016 Strategic Pricing Associates, Inc. 54
THANK YOU
Strategic Pricing Associates