London Office233 High Holborn, London WC1V 7DNTel. +44 (0)7515 998 075e-mail: peter.colman@simon-kucher.comInternet: www.simon-kucher.com

Commercial Strategy, Marketing and Pricing for Profitable Growth

The Materials Entrepreneur Event

Dr. Peter Colman, DirectorLondon, 19th April 2010

- 1 -

Agenda

1. Commercial strategy

2. Marketing

3. Pricing

4. Lessons learnt

- 2 -

Define your target markets

MarketAttractiveness

� Key� Complementary� Niche

� Strategic� Core� Yield

Products/Services

Customers

� Direct� OEM� Distribution� …

Channels

Regions � Have you defined your target markets?

� Do you know the market’s relevant players?

� Can you fulfil the market’s requirements?

� Do you have the right product/service portfolio?

Target Markets

Source: SKP

- 3 -

Evaluate the competitive situation

unattractive attractive

= SKP-Customer= Dominant national competitor= Niche-Player

= Dominant international competitor

Market Attractiveness

h

g

e

a

b

65

f

4321

Approach:

� Systematically evaluate competitive situation

� Map out key targeted segments

Competition Map

Product categoryProduct category

Customer segment

Customer segment

Source: SKP

Project Example

- 4 -

Differentiate customers into specific but manageable segments

Highly differentiated Necessary differentiation No differentiation at all

Segmentationneeds to be differentiated

but manageable

Dimension 1: To be defined

Dim

ensi

on 2

: To

be d

efin

ed

Source: SKP

- 5 -

StakeholderWeighted influence

on decisionDirect sales

potentialShare of visits

Contractor B 22% 18% 1%

Contractor C 13% 9% 14%

Architect 8% 20% 3%

Engineer A 4% 3% 1%

Contractor A 36% 5% 1%

Engineer B 17% 43% 80%

Focus on decision influencers as well as payers

Project Example

Source: SKP

- 6 -

Recruiting the right sales people is critical

Leadershippotential

New customeracquisitionpotential

“Key accountmanager”

“Farmer” “Hunter”

High

Low

High Low

“Market developer”

� New business division with aggressive growth strategy

� Required “Market developer”and “Hunter” sales profiles

� Profiling identified too many “Farmers”

� Changed recruitment/ development approach

Sales force profiling

Project Example

Source: SKP

- 7 -

Agenda

1. Commercial strategy

2. Marketing

3. Pricing

4. Lessons learnt

- 8 -

Ensure your portfolio positioning is logical

Differentiate offerings … ... but keep a consistent price/performance ratio

Price

As-is To-be

Current offering

Premium offering (incl. e.g. extra services)

Less Expensive AlternativeA

New low-end offeringB

C

D

Performance

Pric

e

A

B

C

D

Source: SKP

- 9 -

Analysis of Customer Demands

Analysis of Performance

Identify and communicate your unique selling points

Matrix of Competitive Advantage

Importance

Service

Reputation/Brand

...

Price

Lead time

Impo

rtan

ce

low

poor high

Quality

Lead time

Price

Reputation/ Brand

Service

...

Quality

Service

Reputation/Brand

...

Price

Lead time

Qualityhigh

Performance

“Consistent” “Too good”

Weaknesses Strengths

Performance relative to competition

Project Example

Source: SKP

- 10 -

How do you handle channel selection and management

� Cost to serve customer

� Personal servicequality needed

� Customer volumereachable

� …

Selection criteria

AgentSales team

Distributor

Customer

Step 1: Channel selection Step 2: Channel management

Company XY

AgentSales team

Distributor

Customer

Company XY

� Requirements

� Price management

� Service level

� …

Controllingelements

Source: SKP

- 11 -

Pulling the right lead generation levers?

Lead generation

Pipeline Management

Trade shows

Web site

Outbound email

Advertisingon/offline

PR ReferralsDirect mail

Tele-sales

Field sales

Pipeline Management

Source: SKP

- 12 -

Agenda

1. Commercial strategy

2. Marketing

3. Pricing

4. Lessons learnt

- 13 -

Is value extraction equal to delivery?

“What value do we deliver to the

customer?”

“How do we get the counter-

value?”

ValueDelivery

ValueExtraction

?

- 14 -

The profit equation

Profit

X Volume CostPrice

- 15 -

Example

Profit

90

Profit

Profit

What volume increase do you need in order to keep

the profit stable?

Price-volume relationship

Cost

80

Volume

100

Price

Price reduction by 10%

100% !

100

- 16 -

Price is your biggest profit lever

100%

60%

40%

30%

A 10 per cent enhancement* of … … increases profit by …

Profit-lever Profit (£M)

Price

Old NewNewOld

10 165460

10 141.1 m1 m

10 20110100

10 1327 m30 m

Variablecostsper unit

Salesvolume

Fixedcosts

Price is the biggest

profit-lever

Price is the biggest

profit-lever

* With all other factors constant

- 17 -

How can we set a target price?

Cost plus

CostMark

up+ =Target price

Competitor's price Own price

+

-

Competition based

Comp.price

Markup+/- =

Target price

Value based

Value tocustomer

=Target price

Source: SKP

- 18 -

Value based pricing - ceramic brakes

Porsche-price: approx. 8,000 €

Ferrari-price: approx. 15,000 €

Source: SKP analysis

- 19 -

Value based pricing – razors

0.63 0.69

1.871.75

1.29

0.97

0.00

0.50

1.00

1.50

2.00

GilletteSensor

GilletteSensorExcel

GilletteMach 3

GilletteMach 3Turbo

Gillette M3Power

GilletteFusion

Price per blade (£)

+9%+41%

+32%

+36%

+7%

Source: Data collected by SKP London in October 2006. Price per blade is based on the largest pack available.

- 20 -

Want no risk

Want price

Customer segments

Value proposition

� “Base” service package

� Steered toward most reliable core products

� “Base” service package

� Steered toward products in lowest price tier

In our experience, four key value segments dominate :

Understanding willingness to pay

Source: SKP

Want it now

� “Express” service package

� Guaranteed next-day delivery

Want the best

� “Premier” service package

� Dedicated tech support and custom product engineers

HighestWillingness to pay

Lowest

- 21 -

Value selling and negotiation

Improved preparation of negotiations

� Understand and quantify the value

you provide (balance of power)

� Prepare your price moves: Where do you make concessions, and how?

� …

� Learning by doing: Negotiation

simulations / pricing games

� Common pressure points and

how to handle them

� Negotiation psychology

� …

Improved facilitation of negotiations

Source: SKP

- 22 -

Agenda

1. Commercial strategy

2. Marketing

3. Pricing

4. Lessons learnt

- 23 -

Lessons learnt

1. Prioritise your target markets

2. Focus on your differentiation/USPs

3. Include willingness to pay in your customer segmentation

4. Avoid cost-plus pricing

5. Rehearse your negotiations