Pricex 2008

Pricing With Confidence:

10 Ways to Stop Leaving Money on the Table

2© 2008 Holden Advisors Corp., Concord, MA

Why Pricing is So Important

• For an “average” company, 1% improvement in price = 10% improvement in profit

• Unfortunately, it’s not that easy– Declines in volumes– Competitive actions– Customer negotiations

• Better: eliminate unnecessary discounting can improve margins by over 20%

• Best: Better prices, less discounting, and more effective offerings significantly increases both profits and revenue

• All it takes is ten simple steps……


Pricing With Confidence10 Simple Rules

• Rule 1: Replace the Discounting Habit with a Little Arrogance• Rule 2: Understand the Value you Offer to your Customer• Rule 3: Apply One of Three Simple Pricing Strategies• Rule 4: Play Better Poker with Customers• Rule 5: Price to Increase Profits• Rule 6: Add New Products and Services that Give you Negotiating

Flexibility and Growth• Rule 7: Force Your Competitor to React to Your Pricing• Rule 8: Build Your Selling Backbone: Teach Your Sales Force and

Managers to Negotiate with Value• Rule 9: Take Simple Steps to Move from Cost-Plus to Value-Based

Pricing• Rule 10: Price with Confidence: Remember Who You Are

Rule One:Replace the Discounting

Habit with aLittle Arrogance


Need to Create the Burning Platform

• Support discipline around execution

• Stop desperation pricing

• Justify investments in staff and tools

• Payback here is substantial


Didn’t track deal results or competitive behavior and responded to “competition” through quarterly discounts.

The Company

The Task

Adopt a price simplification system, including communications and training. Stop end of quarter discounting.

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Mar

-03

Apr

-03

May

-03

Jun-

03

Jul-0

3

Aug

-03

Sep

-03

Oct

-03

Nov

-03

Dec

-03

Jan-

04

Feb

-04

Mar

-04

Apr

-04

May

-04

Jun-

04

Jul-0

4

Aug

-04

Sep

-04

Oct

-04

Nov

-04

Dec

-04

Jan-

05

Feb

-05

Mar

-05

Apr

-05

Un

its

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Volume 10% Smoothing Wtd Avg ASP

In the following year, revenues increased 17% and net income increased by 37% - over $300mm per year.

The Results: Increased Sales

Operating Income

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

2005 2006

Results: Simplify pricing and end discounting


Kick the Discounting Habit

• If you don’t think you can kick the discounting habit, you’re right

• Understand who gets and gives discounts• How effective are your discounts?• Be willing to fire your unprofitable customers• The biggest test is putting a stake in the

ground—anywhere• How do you replace the habit?


With Just a Little Arrogance


Rule Two: Understand the Value

You Offer Your Customers


Results:Understanding Value

A division of a financial services company offered premium products, but faced a low-price competitor.

The Company

The TaskDevelop structured offerings with differing levels of value and sales tools to communicate the value of the offering bundles, and pricing rules. Train sales and marketing on use.

With a more rational offering and strong tools to communicate value, the firm was able to raise prices. After 18 months, revenues were up by 82% and profits were up by 196%

The Results


Knowing Your ValueMoves You From:

Being a Victim

To:

Value Confidence


Rule Eight:Build Selling Backbone


The Selling Problem

The big news: It’s not their fault!


Prepare for Tough Negotiations


Planning is Everything

Rule Nine:Take Simple Steps toMove from Cost-Plus

To Value-Based Pricing


Better Cost-Plus Pricing

Better Market-Driven

Pricing Pricing to Value

Evolution of Pricing Capabilities

• Improve quality of costing data

• Start using incremental costing in some pricing decisions

• Use price to control utilization

• Base prices on value and competition

• Adjust cost multipliers

• Use costs to limit low end prices

• Understand customer value impacts

• And primary points of differentiation

• Relative to competition

• Take a “fair share”

Remember, the objective is not “value-based pricing.” It is higher revenues and profits.


Rule 10:Remember Who You Are


Concluding Thoughts

• Need a value leader– Might need a pricing

leader first

• Go on a “value hunt”

• Senior leaders: manage value not price

• Confidence in value=confidence in price


Thank You & Good Luck ---Questions?

Mark Burton

Vice President, Co-Founder

Holden Advisors

978-405-0022

[email protected]

Pricex 2008

Business

Transcript of Pricex 2008