Pricing 2015 and Outlook 2016 distribution version compressed · Source: Simon-Kucher & Partners...

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Developments, Challenges and the Outlook for 2016

Pricing 2015

London, November 2015

James Brown

London office3rd Floor, 1 Plough PlaceLondon EC4A 1DE, [email protected]

James Brown_Exceedra_2015 2016

Today’s session

▹ Pricing in 2015 – context & experience

▹ Outlook for 2016 – common themes

2

Source: Simon-Kucher

To start with.. Three questions

1. Have you recently experienced higher price pressure?

2. Do you feel able to raise your prices?

3. Do your new products hit their profit targets?

James Brown_Exceedra_2015 2016 3

*Multiple responses possibleSource: Global Pricing Study 2014; + Simon-Kucher experience & audience feedback

Price pressure:Downward pressure on prices at unprecedented levels

Have you experienced higher price pressure in the last two years?

Why?Top 3 reasons*

Low price competition/

new attackers

Greater customer negotiation power

Increased price transparency


Yes, 83%

No, 17%

52%

39%

36%

Consumer Goods 2015?+

4

We did – accidentally

5%7%

We did – on purpose

Who started the price war?

88%

Source: Simon-Kucher & Partners Global Pricing Study 2014

58%

Is your company currently engaged in a price war?

19%No – there is a

price war, but we

are not involved

23%No – there is no

price war


Price pressure: Majority of companies are engaged in a price war

5

Excluded: Respondents who were unable to track their price realisation or who lowered their pricesSource: Global Pricing Study 2014

Low pricing power:Companies want to raise prices, but most struggle


Average realisation rate for price increases (vs. plan)

50%

37%

2012 2014

Companies typically

achieve only 37%of price increase they were seeking.

That is the lowest realisation rate we have ever measured in our Global Pricing Studies.

6


And if we ask Consumer Goods companies at the end of 2015?

Average realisation rate for price increases (vs. plan)

50%

37%

2012 2014 2015

?

� Planned increases have been at a record low

� Achieved increases, reported as being negligible in many categories

� Success being defined as “price declining less than category average”

7


Aggressively competitive

environment

Price transparency &channel convergence

Macro-economic environment

8


Source: www.inflation.eu

Across the EU we felt the impact of a zero inflation environment…

EU Inflation Rate

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

2010 2011 2012 2013 2014 2015

9


ONS

… But inflation isn’t uniform and (especially in the UK) we see consumer goods dragging this down…

GOODS (-1.6)

SERVICES (+1.7)

OVERALL(-0.3)

10


Source: Nielsen 16th November 2015

…whilst at a European level prices AND volumes have been increasing there are exceptions

Volume up 1.3%

Price up 1.7%

Value growth 3%

Year On Year change across 21 European countries3%

3%

2.30%

2%

1.10%

-0.30%

Nominal growth Year on Year 2015 Q3 v 2014

11


Source: Nielsen 16th November 2015

…whilst at a European level prices AND volumes have been increasing there are exceptions

Volume up 1.3%

Price up 1.7%

Value growth 3%

Year On Year change across 21 European countries3%

3%

2.30%

2%

1.10%

-0.30%

Nominal growth Year on Year 2015 Q3 v 2014

12

PRICE WAR!

What Ignites Price Wars?


Excess capacities

Unexpected cost reduction

Commoditisation of product

Low market growth

Industry structure

New entrants

Disruptive technology

Irrational behaviour

….

14

53.7%

33.9%

21.4%19.3%

14.3%

58.4%

32.2%

19.6% 20.6%

8.6%

0%

10%

20%

30%

40%

50%

60%

70%

UK Italy Spain France Germany

Food Non-food

*Sources: Symphony IRI; “Pricing and Promotion in Western Economies: Special report October 2015

The price war is fought on base and promo:These can’t be delinked, especially true in the UK market

Average 28.6%


Volume % sold on promotion

15


Pressure on suppliers has increased

� In many cases Consumer Goods suppliers are stuck in a retailer lead price war

� Whether driven by fear of discounters in UK’s FMCG market, or the international transparency of Amazon

� Retailers use price war and price deflation to hold down prices and re-enforce negotiation

� The threat of de-listing used to push requirements for “simplified” pricing structures (folding)

� Increasingly buyers look to control average price– limiting room for suppliers to control base and promo price structures

16


Looking at the year ahead – focus areas for 2016

� Pressure on international harmonisation

� Pricing for NPD to improve hit rates

� Continued price wars and growth of the discounters (UK)

� Pricing in a low (no) inflation environment

� Growth of analytics and revenue management organisations

Focus tailored to UK FMCG audience

17








18


Looking internationally, pressure to harmonise pricing continues to grow

� Longstanding problem for durables

� Consumer electronics probably best positioned on this

� 2015’s dramatic shifts in exchange rates

� Some other sectors heavily exposed

� Goal: maintain justifiable differentiation

� Requires clear migration strategy, implementation of defensible terms structure, strong key account management and product / value differentiation management

€0

€200

€400

€600

€800

€1,000

€1,200

€1,400

19








20

Source: Global Pricing Study 2014; Kantar press release November 2015

NPD will remain a focus - and in many cases won’t deliver the expected outcomes!

On average only 28% of new products meet their profit targets

One-fourth of all respondents confirmed that not a single one of their new products met profit expectations

Are your new products meeting their profit targets?


No, 72%

Yes, 28%

Food for thoughtKantar monitor 30k NP launches per year

- Significant portion cut within 12 weeks

- 16% will reach sales > £1m,- just 3% will achieve >£5m.

21

* Less than five years oldSource: Global Pricing Study 2014

Pricing and promo considered far too late in the NPD process

The share of successful product launches

doubles when a company takes pricing into account continually rather than neglecting or ignoring them until the launch


20%

40%

Pricing considered only at time oflaunch

Pricing considered throughout thedevelopment process

Share of new products* that meet profit targets

Target price architecture and promo price points considered too late in the CG NPD process

22








23


“The UK marketplace is changing

faster than at any time in the past 30

years”

Mike CoupeCEO Sainsbury’s

24


Aldi and Lidl are clearly perceived as delivering low, low prices….

Thinking about everyday shopping, which supermarket would you say is likely to be the cheapest?

0 5 10 15 20 25 30 35

Aldi

Lidl

Asda

Tesco

Morrisons

Sainsbury's

Waitrose

Percentage

Simon-Kucher & Partners, survey of 2086 consumers; split sample, May 2015, weighted to reflect average online demographic

26


Simon-Kucher & Partners, survey of 2086 consumers; split sample, May 2015, weighted to reflect average online demographic

… But Price ≠ Value...

Thinking about everyday shopping - bearing in mind quality, availability and service -which supermarket would you say offers best value for money?

0 5 10 15 20 25

Waitrose

Morrisons

Sainsbury's

Lidl

Tesco

Asda

Aldi

Percentage

27


“They try and fight us on

price but they won’t win,

because they define our

margin. And we will be 15% cheaper”

Matthew BarnesCEO Aldi UK &

Ireland

28


Source: Kantar Worldpanel

Supermarket market shares have been relatively stable over the last decade…

Supermarket sales share by value

Tesco Asda Sainsbury’s Morrisons

Aldi & Lidl Co-operative Waitrose

0%

5%

10%

15%

20%

25%

30%

35%

01-Jan-94 01-Jan-98 01-Jan-02 01-Jan-06 01-Jan-10 01-Jan-14

29


Source: Kantar Worldpanel; Simon-Kucher analysis

…but the combined discounter position is expected to grow dramatically over the next 5 years

Supermarket sales share by value

Tesco Asda Sainsbury’s Morrisons

Aldi & Lidl Co-operative Waitrose

0%

5%

10%

15%

20%

25%

30%

35%

01-Jan-94 01-Jan-98 01-Jan-02 01-Jan-06 01-Jan-10 01-Jan-14

0%

5%

10%

15%

20%

25%

01

/04

/20

10

01

/10

/20

10

01

/04

/20

11

01

/10

/20

11

01

/04

/20

12

01

/10

/20

12

01

/04

/20

13

01

/10

/20

13

01

/04

/20

14

01

/10

/20

14

01

/04

/20

15

01

/10

/20

15

01

/04

/20

16

01

/10

/20

16

01

/04

/20

17

01

/10

/20

17

01

/04

/20

18

01

/10

/20

18

01

/04

/20

19

01

/10

/20

19

01

/04

/20

20

2010 2015 2020

Outlook for the next 5 years?

30


Beaten by a simple business model?

Up to 90,000 product lines

Full range of quality points covered

Cutting edge marketing and customer insight

Leading loyalty schemes

Sophisticated promotions

Variable pricing

….

1,000 to 3,000 product lines

“Good enough” quality

(Relatively) stable pricing

Low pricing

….

31


Our advice to grocery suppliers – 5 things you can do

Quantify your position: brand premium, gap closure impacts, loss and potential gain1

Agree strategy for discounters at C-Level: and communicate across the organisation. This can’t be dealt with at account manager level, or on a one-off basis2

Revisit pack , price and promo architecture across your portfolio: is it fit for purpose today and for the mid term? Where is the route to value – via volume or price?3

Defend your position with established retailers: don’t cede your margin simply to allow them to fight a price war between themselves4

Ensure commercial policy to discounters vs. traditional retail is defensible:discounters buy high volumes of single SKUs, but “super” deals antagonise key customers5

32








33


In a low (or no) inflation environment we need to go back to basics on the price & promotion…

� Simple annual price increase process under threat - focus shifts to price decrease defence

� Value growth and margin management through focus on average price

− Strategies to de-escalate promotions being re-thought

− Increasing focus on promotional analytics with aim to:

� Reduce promotional frequency & depth

� Improve targeting of promotion

� In many categories, focus on developing base price with promotional price points and mechanics in mind

− Establish existence of key thresholds in today’s environment

− Target distance from promotional price points

− Pack size engineering is a key weapon but needs to be used sparingly

34


…And accept that selling changes to retail partners is going to be tougher

� Changes will be tough to sell to trade unless they clearly drive category value growth OR defend against value erosion

� Price and promo plans will still need to be sold as a package to avoid retailer cherry-picking

� Retailers are under pressure to improve the sophistication of their own pricing – and increasingly enabled by technology to run optimisations even when strategies have not been set

� 2016 will be a challenging year to rebalance trade terms with limited room for price growth, and increased pressure to fold terms into price

� We can expect demands for increasingly high burdens of proof for changing price & promo plans – backed with analytics and robust market insight

35


Summary: Expected focus areas for CG Pricing in 2016

� Back to basics for many consumer goods players:

− Re-linking of price strategy to brand strategy

− Re-establishing price architecture flattened or badly damaged by excessive promo/value range intro

− Earlier incorporation of pricing into NPD

− Setting out clear channel strategies – especially around growing Discounters in UK

� Managing the complexity of introducing simplicity!

− Dealing with increased price transparency & international harmonisation

− Growing personalisation of promos and offers

− Accelerated cadence – more price change more often in the retail environment

� Growth of professional Revenue Management Function

− with a focus on interlinked price & promo strategies

36


About Simon-Kucher

Source: Simon-Kucher & Partners; manager magazin, August 2011/IMB, survey among German top managers

We are pricing experts: Simon-Kucher & Partners at a glance

World leader in giving

advice to companies on how

to price their products

Pricing strategy

specialists

The world’s leading

pricing consultancy

In pricing you offer

something nobody else

does

BusinessWeek The Economist

Professor Peter DruckerThe Wall Street Journal

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29 offices worldwide~750 employees

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Strategy> 500

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� Growth and competitive strategies

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World leader in pricing

Global presence >3,200 projects in the last 3 years

1 Simon-Kucher & Partners

2 Boston Consulting Group

3 McKinsey & Company

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McKinsey & Company

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manager magazin

Marketing and sales

brand eins Thema

Marketing and pricing Sales and CRM

......

Source: manager magazin survey of top managers in Germany, August 2007 and 2011/IMB

Source: brand eins Thema/Statista survey of 1,426 partners and project leaders from consulting firms and 1,300 C-level managers from German companies, May 2014

Best consultancy in marketing and sales

Atlanta


We work side by side with industry leaders across all sectors

Automotive Consumer & RetailAlfa Romeo

Audi

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Barnes&Noble.com

Beiersdorf

Coca Cola

Ferrero

Haribo

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Nikon

Office Depot

Pepsico

Unilever

Weetabix

Energy & Utilities Technology & SoftwareBP/Aral

Castrol

E.ON

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Liquigas

Mainova

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RheinEnergie

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Tank & Rast

Yello

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Source: Simon-Kucher; * Selection due to client confidentiality

Our Global Consumer & Retail Practice has extensive experience across all sub-sectors

Fashion, Apparel & Luxury

Consumer Durables

Food & Beverage FMCG

Non-Food FMCG Retailers

� Michelin

� Nikon

� Nokia

� Olympus

� Tesa

� Texas Instruments

� Warner Music Group

� Xbox Live

� Avon

� Coty

� Dr. Scheller Cosmetics

� Johnson & Johnson

� Kimberly Clark

� NeoStrata

� Nivea

� Procter & Gamble

� Reckitt Benckiser

� Schwarzkopf & Henkel

� Shiseido

� Weleda

� Barnes & Noble

� Delhaize

� Deli XL

� Douglas

� Metro

� Migros

� Office Depot

� Otto

� The Container Store

� Adidas

� Brooks Brothers

� Coach

� Clarks

� Nike

� Swarovski

� Steinway & Sons

� T M Lewin

� Apetito

� Associated British Foods

� Bofrost

� Coca Cola

� Danone

� Dr. Oetker

� Ferrero

� Haribo

� Molson Coors

� PepsiCo

� Pernod Ricard

� Unilever

� Weetabix

Selection*


Pillars of Pricing Excellence for FMCG companies all centers around optimally executing your brand strategy


Portfolio Architecture:� Clearly defined portfolio roles for brands

� Needs-based target consumer segments

� Value-based pack-price architecture

� White space innovation planning

� Distribution and SKU prioritization

Commercial Policy:

� Performance-based and defendable commercial terms and conditions

Trade Promotion:

� Retailer-specific promotion planning and guidelines (depth, frequency, vehicle, promotional product mix)

Consumer Pricing:� Price-value positioning, based on relative

competitive advantages and disadvantages

� Alignment with key price thresholds

Brand Strategy

� Purposeful discount curve

� New product pricing and launch

� Shopper-driven channel strategy

� Harmonized list and triple net prices

� Established importance and role of trade promotion

� Tools and analytics

� Organization and processes

� Performance tracking and reporting

� Capabilities and skill developmentInfrastructure


Source: Simon-Kucher; *ROS = Return on Sales impact seen on average across >500 projects

Capturing these common missed opportunities (growth or loss avoidance) could translate into 2-5% ROS* impact

Portfolio Architecture:

� New skus (sub-brand, pack size, variant, format) mostly cannibalize existing portfolio vs. capturing incremental consumer segments or occasions

Commercial Policy:Trade Promotion:

Consumer Pricing:

� Misaligned value-price positioning for innovations due to cost-plus approach

2-5% ROS*

� Profit leakage through over-discounting

� Over-invest in price discounting (trade and coupon) due to heavy focus on event ROI vs. accounting for cross-portfolio, cross-channel and cross-time effects

� Uniform price cuts that trigger price wars vs. surgical price adjustments

� Price, margin erosion by enabling disruptive retailers to price aggressively via trade terms

Infrastructure� Lack of C-level commitment to drive changes through execution� Underdeveloped Revenue Management organisation� Lack of systematic processes for pricing analytics



Your UK contacts at Simon-Kucher

James Brown

Partner, London

phone: +44 (0)207 832 6700

e-mail: [email protected]

James Brown is a Partner with Simon-Kucher

& Partners in London and has 11 years

experience in industry roles prior to joining

Simon-Kucher.

He leads the Consumer Goods practice in the

UK, and his work at Simon-Kucher has

covered UK and international clients, including

leading FMCG companies and a number of

Private Equity firms where he works across

their portfolios.

He specialises in commercial strategy, with a

particular focus on pricing in the Retail &

Consumer Goods and B2B services sectors.

Prior to joining Simon-Kucher, James was

Head of International Pricing at Hertz Europe.

Before this he held the role of Senior Pricing

Manager in the global services division of

Ricoh, a leading IT hardware and services

provider.

David Smith

Senior Director, London

phone: +44 (0)207 832 6700


David is a Senior Director at Simon-Kucher &

Partners in the London office.

Since joining Simon-Kucher & Partners in

2007, David has worked for both the London

and San Francisco offices, and has conducted

projects across the UK, Europe and the USA.

David has a wide range of experience in

marketing and strategy, having worked with

clients in various sectors, predominantly with a

B2C focus including leading retailers and

FMCG producers. .

David is a regular conference speaker on

topics including customer loyalty and pricing

strategy.

Ivan Šegrt

Director, London

phone: +44 (0)207 832 6700


Ivan is a Director at Simon-Kucher & Partners

in the London office.

His areas of specialisation are promotional

effectiveness, price modelling and structured

pricing / trade terms in consumer goods and

retail sectors in particular.

Ivan joined Simon-Kucher with seven years of

industry experience. He worked for Anheuser

Busch - InBev, where in addition to Sales and

Category Management he worked as a

Pricing Manager for On-Trade covering UK &

Ireland.

He subsequently joined Dunnhumby

(subsidiary of Tesco) as a Senior Price and

Promotion Lead where he led a team of

experts assessing promotional effectiveness

and working on projects with leading FMCG

companies.



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Pricing 2015 and Outlook 2016 distribution version compressed · Source: Simon-Kucher & Partners...

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