"The Marketing – Finance Interface: Practical Examples" - Dr. Gerben P. Algra

DSM Marketing Office

1The Marketing – Finance Interface: Practical Examples

Gerben Algra

VP Marketing


2Table of contents

• Introduction

• DSM : who we are and what we do

• Pricing

• Product Launch

• Conclusions


3

The Life Sciences and Materials Sciences Company contributing to quality of life


4

Evolution

Over a century of successful transformations

Life Science Products

Coal

Fertilizers

Petrochemicals

Performance Materials

Bioterials / Biologics

Chemical engineering

Polymer technology

Fine chemicals

Material science

Mechanical engineering

Biotechnology

Technological competences1902 1930 19701950 1990 2000 2010


5DSM from DSM from 2000 to 20052000 to 2005 : : Focus and ValueFocus and Value

Petro LSP

PMIC

2000

IC

PM

Divestment Petchem Acq. Roche V&FC Acq. NeoResins

IC

PMPM

LSP

Pharma

IC

Sales € 8.2 bn

Sales € 5.6 bn

Sales € 8 bn

H2’02/H1’032005

DNP

…………. Second major transformation of DSM …………


6DSM Vision 2010: DSM Vision 2010: Building on StrengthsBuilding on Strengths

Value Creation

Market-driven Growth and innovation

Building on Strengths

Increased PresenceEmerging Economies

OperationalExcellence


7Reshaping the Portfolio

Carve out and divest

• Melamine/urea/fertilizers

and Energy

• Elastomers

• Special Products

• Maleic anhydride

and derivatives

Carve out and partner

• Citric acid • Anti-Infectives

Reposition Fibre Intermediates Strong leadership provides backward

integration DEP

Focus on Life Sciences and Materials Sciences

4 core clusters:• Nutrition• Pharma• Performance Materials• Polymer Intermediates

+ 5th cluster:• Base Chemicals & Materials


8Accelerating Vision 2010

Nutrition Pharma Performance Materials

Sharedcompetencies

Markets Technologies Functional Excellence

Exploiting strong market positions and technology platforms

Climate and Energy

Health andWellness

Functionality andPerformance

EmergingEconomies

Life Sciences Materials Sciences

EBAs


9Portfolio Synergy Creates EBA Growth PlatformsPortfolio Synergy Creates EBA Growth Platforms

Pharma Performance MaterialsNutrition

Materials

SciencesChemicalSynthesis White Biotech

• First concepts patent-protected• Investments in

Jurilab, Integragen and Sciona

Personalized Nutrition

• First coating sales• Investments in

Harland, OPM, Xylos, MicroMuscle• Further growth

Dyneema Purity®

Biomedical Materials

• Investment in FQSI• Active

systems in development, first in food

Specialty Packaging

• Biofuels/ Bio-Based Chemicals Programs• Joined

€ 100 m French Biohub Program

White Biotech


10Key Figures Key Figures

(€ million) 2007 H1/08 %

Net sales 8,757 4814 + 11 %

EBITDA* 1,247 718 + 14 %

EBIT* 823 514 + 23 %

Net profit* 558 355 + 24 %

Net profit incl. exceptional items 429 355 + 203 %

Globally > 200 locations, ca. 23,500 employees

Leadership positions in ~75% of the business portfolio

R&D spend ca. € 350 million

Solid balance sheet

* Before exceptional items

NB : EBIT expectations 2008 first increased to 970 Mio Euro, recently further increased to 1025 – 1075 Mio Euro


11

Internationalization& Diversity

Climate &Environment

NutritionImprovement

Leader in Sustainability, Now & in the FutureLeader in Sustainability, Now & in the Future

People, Planet, Profit

DSM Values: “We can’t be successful in a world that fails”


12DSM Organizational ChartDSM Organizational Chart

DSM Innovation CenterDSM Innovation Center Corporate StaffCorporate Staff

Shared Competences & Business Support

Shared Competences & Business Support

DSM Nutritional Products

DSM Food Specialties

DSM Resins

DSM Engineering Plastics - DSM Dyneema

DSM Elastomers

DSM Agro

DSM Melamine

DSM Fibre IntermediatesDSM Special Products

DSM Pharmaceutical Products

DSM Anti-Infectives

DSM Energy

DSM Nutritional Products

• Human Nutrition and Health

• Animal Nutrition and Health

DSM Food Specialties

Nutrition

DSM Pharmaceutical Products

DSM Anti-Infectives

Pharma

DSM Engineering Plastics

DSM Dyneema

DSM Resins

Performance Materials

DSM Fibre Intermediates

PolymerIntermediates

DSM Agro

DSM Elastomers

DSM Melamine

DSM Energy

Base Chemicals & Materials

Corporate Staff

Shared Competences &

Business Support

DSM Managing Board

DSM Innovation Center


14DSM is everywhereDSM is everywhere

PROGRAM EXCELLERATE

PRICING


16… … PRICING IS THE MOST POWERFUL LEVER FOR IMPROVING PRICING IS THE MOST POWERFUL LEVER FOR IMPROVING REVENUE AND PROFITABILITYREVENUE AND PROFITABILITY

2.6

3.6

8.7

12.3

0 5 10 15

Fixed costs

Unit volume

VariableCosts

Price

THE DIRECT IMPACT PRICING HAS ON THE BOTTOM LINE, POSITIVELY AND NEGATIVELY, JUSTIFIES PRICING AS A TOP PRIORITY!

THE DIRECT IMPACT PRICING HAS ON THE BOTTOM LINE, POSITIVELY AND NEGATIVELY, JUSTIFIES PRICING AS A TOP PRIORITY!

Impact of 1% change in a category on company profit

Source: Customers of pricing consultant Simon Kucher & PartnersSource: McKinsey, Simon Kucher & Partners, BCG and Excellerate


17MOVING TO WORLD CLASS PRICING IS A JOURNEYMOVING TO WORLD CLASS PRICING IS A JOURNEY

PROCESSMATURITY

LEVELS

MATUREPROCESS

WORLDCLASS

LEVEL

BaselineProcess isIneffective

30% of companies1

LEVEL 2

InternalProcessIn Place

Gain Control 40% of companies

LEVEL 4

OptimizationProcessesIn Place

OptimizationTools <10% of companies

LEVEL 3

ValueProcessesIn Place

Price/ValueAnalysis 20% of companies

LEVEL

ExcellenceinExecution

<1% of companies5

Pricing Solutions Ltd., 2003©


18PRICING MANAGEMENT : 2 ELEMENTSPRICING MANAGEMENT : 2 ELEMENTSOPTIMIZATION AND EXCELLENCEOPTIMIZATION AND EXCELLENCE

ACHIEVING THE FULL PROFIT IMPROVEMENT POTENTIAL OF PRICING REQUIRES QUITE A JOURNEY, BUT ALSO SHORT AND FOCUSSED EFFORTS BRING LARGE GAINS

ACHIEVING THE FULL PROFIT IMPROVEMENT POTENTIAL OF PRICING REQUIRES QUITE A JOURNEY, BUT ALSO SHORT AND FOCUSSED EFFORTS BRING LARGE GAINS

Pricing Management

Pricing Optimization

Pricing Excellence

Price Structure

Price Level

Value BasedPricing

Price Consistency

Processes

Organization

Tools &Systems

People & Behavior

Performance Monitoring


19

Dedicated / Focused Project

Start up/ Kick Off

Analysis & diagnosis

Option development

Prepare for Execution

Implement & monitor

Quick scan

E.g. Analyze current prices

• Historic prices

• Prices competitors

• Value for customers

• Own costs

Define pricing strategy&Segmentation&Differentiation

Develop tools&Make choices& Set targets

Implement new customer plans&Monitor / Analyze&Recalibrate / Improve(Deming Cycle)

Define implementation program&Training sales force +other depts

Detailed Account Plans&Owners&Timelines

Key Improvement levers identified

In Depth analysis& diagnosis based upon outcome Quick Scan

Monitoring Tools&Roles /Responsibilities

Project Approach : Set up Project Approach : Set up

Your Organization Ready, Willing, Able ……………?

Line Responsibility

Define Team&Explain context&Clear Objectives

Alignment Results


20RANDOM EXAMPLE : PROFIT IMPROVEMENT POTENTIALRANDOM EXAMPLE : PROFIT IMPROVEMENT POTENTIALPCR

0 1 2 3 4 5 6 7 8 9 10

Volume Index

Pri

ce In

dex

• Any correlation ?• Any conscious differentiation ?• Right Price Level ?


21

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

0.0

Volume

Cu

sto

mer

pro

fit

as p

erc

en

tag

e o

f N

et

Sale

sPCR Global

RANDOM EXAMPLE : PROFIT IMPROVEMENT POTENTIALRANDOM EXAMPLE : PROFIT IMPROVEMENT POTENTIAL

• Cost allocation correct ?• Negative customer profits ?• Any conscious differentiation ?• Profitability Levels OK ?


22PROFITABILITY ANALYSIS PROVIDES INSIGHTS …..PROFITABILITY ANALYSIS PROVIDES INSIGHTS …..

Graph gives insight into profitability of customers

EBIT Contribution Sold-to Parties Tests

0,0

500,0

1000,0

1500,0

2000,0

2500,0

EB

IT E

UR

x 1

000

Unprofitablecustomers

Profitablecustomers

‘Bleeders’


23ARE YOU CONFIDENT THAT PRICE ARE YOU CONFIDENT THAT PRICE LEAKS ARE NOT ERODING YOUR PROFITABILITY?LEAKS ARE NOT ERODING YOUR PROFITABILITY?

Price exceptions

Net realised price

% of sales

List Price

ReturnsFreight

Selling

<10% volume

Incentives

Terms

Price Leaks By Product

Opportunities to control undesirable price leaks in the organisation


24MONITORING SALES FORCE PERFORMANCEMONITORING SALES FORCE PERFORMANCE

Average Price And Volume By Salesperson For Product A, Region A

Volume

Price

Median

5%

15%

‘Excellent’

EBIT Impact

Sales-person

1 2 3 4 5 6 7 8 9


25

Dedicated / Focused Project

Start up/ Kick Off

Analysis & diagnosis

Option development

Prepare for Execution

Implement & monitor

Quick scan

E.g. Analyze current prices

• Historic prices

• Prices competitors

• Value for customers

• Own costs

Define pricing strategy&Segmentation&Differentiation

Develop tools&Make choices& Set targets

Implement new customer plans&Monitor / Analyze&Recalibrate / Improve(Deming Cycle)

Define implementation program&Training sales force +other depts

Detailed Account Plans&Owners&Timelines

Key Improvement levers identified

In Depth analysis& diagnosis based upon outcome Quick Scan

Monitoring Tools&Roles /Responsibilities

Project Approach : Set up Project Approach : Set up

Your Organization Ready, Willing, Able ……………?

Line Responsibility

Define Team&Explain context&Clear Objectives

Alignment Results


26Price setting modelPrice setting model

Price setting based on inside-out and outside-in insights

Pricing : Financial model / Internal perspective

Customer / Competitor

Perspective :

Inside - Out Outside - In

Reflects Key driversAims for consistencyProvides Targets

Sales Pitch vs. Next best Alternative


27Account Plans : Key to actions and monitoringAccount Plans : Key to actions and monitoring

Account plan

Present account data

Sales argumentation

Price calculator

List prices

• Standard Format• Easy link to reporting Systems

• Every Account• Every Product

Value calculator ActionsNr Action Owner Due Date Status

123456789

1011121314151617181920

Nr Action Owner Due Date Status123456789

1011121314151617181920

Account Plans : • Written by Account Manager• Upfront agreed with Line (Up and Down)• Transparent Targets and Timelines• Basis for regular monitoring / review


28MONITORING : SPIDER IN THE WEB !!

Management & Organisation

Adjust roles & responsibilities (RASCI)

Steer organization towards price leadership

Performance Measurement

KPIs Monitoring

Infrastructure

Implement support structures:- Annual Account Plan writing &

Account Plan database- Monthly price instructions- Fast & user friendly tools

Processes

Implement new pricing process- Regular review /calibration- Price setting in line wit

business dynamics- Continuous competitor

intelligence (Value calculator)

Strengthen pricing capabilities- value based selling / pricing - Train (new) sales staff- Lead by example- Align incentives- Communicate successes

People & Culture


29Improvement Cycle and making results SUSTAINABLEImprovement Cycle and making results SUSTAINABLE

Account Plans

Review : External FactorsInternal Factors

RecalibratePricing Model :

Price AND Value calculator

Monitor Progress

• Formalize Process• Define frequency• Report and Collect : prerequisite for learning

Nr Action Owner Due Date Status123456789

1011121314151617181920

ServicesServices

CustomersCustomers

Value in Value in UseUse

CompetitionCompetition

SegmentationSegmentationLeadershipLeadership

Raw Raw MaterialsMaterials

Global vs. Global vs. RegionalRegional

ServicesServices

CustomersCustomers

Value in Value in UseUse

CompetitionCompetition

SegmentationSegmentationLeadershipLeadership

Raw Raw MaterialsMaterials

Global vs. Global vs. RegionalRegional


30

Product LaunchProduct Launch


31Innovation : Bigger, faster, cheaper, betterInnovation : Bigger, faster, cheaper, better

Accumulated Losses

Opportunity

time

Revenues

€

Source: Prof. JP Jeannet, AIM course

Business Development Time & Cash Line(s)


32Key Functional Involvement over the Launch CycleKey Functional Involvement over the Launch Cycle

Screen? ReviewLaunch?Scale-up?Develop?

Legal

Manufacturing

Marketing

R&D

Sales

Finance

IDEAGENERATION

BUSINESS FEASIBILITY

DEVELOPMENT

SCALE-UP &

VALIDATION

TRANSFER TO

RUNNING BUSINESS


33Marketing and Sales Focus Marketing and Sales Focus

Price

Place

Promotion

Product

Customer

CompanyUnlimited. DSM

Context

Value for customer Cost base CompetitionFit to product positioning

Geographic marketsSequential launch vs. big bang Sales channels

Product positioningCommunication channels Brand relevance

Target product profile

Time-to-market sensitivity Registration

Needs and buying factors

Segmentation Market assessment

Launch planCross-functional teams Resource allocation

Sr mgmt sponsor -ship/ involvement

Sales force development

Value chains Business modelsAdoption barriers PartnershipsCapabilities and assets

+ Reference to “Guide to

Business Planning”

+ Reference to “Guide to Marketing Planning”

Business feasibility

Develop-ment

Scale-up & validation

Idea generation

LaunchIN SYNC

Project Management Process

Price

Place

Promotion

Product

Customer


Context












Price

Place

Promotion

Product

Customer


Context

Price

Place

Promotion

Product

Customer


Context




















Sr mgmt sponsor-ship/ involvement



Project Management Process

Business feasibility

Develop-ment

Scale-up & validation

Idea generation

LaunchBusiness feasibilityBusiness feasibility

Develop-mentDevelop-ment

Scale-up & validationScale-up & validation

Idea generationIdea generation

LaunchLaunch


34Concept Development : POSITIONING

Concept # 5

Concept # 4

Concept # 1

Concept # 2

…………. Creative Part of the Process …………….

Concept # 3


35Example Claryl® : Speaking the customer’s language

Benefits

• “is there any glass there?”• “you don’t have to be up close to see what you’re

looking at”• “you can just concentrate on the picture”• “(it gives you) freedom to hang the picture where

you like”• “you can view your painting uninterrupted, all day

long”• “it’s like wearing sun glasses…it’s better”• “if you buy a picture you want to be able to see it”• “sharper and brighter”• “looks closer”• “the color looks better”• “would look great on tapestry”• “…it really is impressive…”

Description of technical features


36……also in picturesalso in pictures

Appealing to your mind Appealing to your imagination


37SOLUTIONS DESIGN & ACTION PLANSOLUTIONS DESIGN & ACTION PLANThe Fruition …The Fruition …

Generate :- Business concept- Artifact- Solution concept- Prototype- Benefits- Etc.

Artifact

Solutionconcept

Preliminary Business concept

Shared Output and Alignment between participants, departments and stakeholders.

MAKE FINAL CHOICES !!


38Product Launch

Iterative processIterative process

Launch Plan Speed & Expansion

Market research BrandCommunication

& Product Launch

• Build Product Launch plan Optimiseexisting Product Launch plan

SPEED:• Review timelines and remove barriers where possible

EXPANSI ON:• Review target markets• Possibilities to expand market introduction (new segments, new target customers)

• Review existing data and market information• Design new market research • Review market research results• Write brand & communications briefs

•Brand / trademark needed ?• Write brief • Write brand introduction plan

• Write brief for communications agencies• Write Launch plan and implement

Launch Plan Speed & Expansion

Market research BrandCommunication

& Product Launch

• Build Product Launch plan Optimiseexisting Product Launch plan

SPEED:• Review timelines and remove barriers where possible

EXPANSI ON:• Review target markets• Possibilities to expand market introduction (new segments, new target customers)

• Review existing data and market information• Design new market research • Review market research results• Write brand & communications briefs

•Brand / trademark needed ?• Write brief • Write brand introduction plan

• Write brief for communications agencies• Write Launch plan and implement

Financials :• Volumes, Price, Mix, Market Share• COGS• Costs R&D, M&S, Manuf. Etc• Result calculation (NPV, ROI etc)


39Conclusion :Conclusion :Commercialization is as much of a craft as it is an art Commercialization is as much of a craft as it is an art

• Establish minimal DSM standards for mandatory launch and marketing plans

• Develop set of tools, frameworks and templates supporting plans

• Establish disciplined process with clear roles and responsibilities

• Ensure implementation (KPIs, incentives, performance dialog)

• Foster creativity and breaking of orthodoxies –go beyond the obvious

• Challenge and enrich plans by bringing in "street-smart", experienced managers

• Build commercial judgment in organization, especially through role-modeling

+


40This presentation was made possible by ………….

"The Marketing – Finance Interface: Practical Examples" - Dr. Gerben P. Algra

Business

Transcript of "The Marketing – Finance Interface: Practical Examples" - Dr. Gerben P. Algra