Pricing for Technology

Transcription

1 Pricing for Technology Price is your product s most important statement Strategic Pricing Management Group, Division of Meloche, Hurwich & Co. Inc. All rights reserved worldwide

2 SECTION 1 The Pricing Opportunity 2

3 Improve by 1% Operating Profit Improvement Price 12.3 Variable Cost 8.7 Volume 3.6 Fixed Cost 2.6 Source: Compustat composite of 3,000 companies 3

4 Phillips Sony Panasonic 88% 120 % 238 % Hitachi 73% Xerox Konica Minolta 72% 53% 37% Industry Average Sharp 44% Samsung Nokia 13% 11% Source: SKP analysis based on latest publicly available full year financial results * Price increase across the board, volume consistent 4

5 SECTION 2 Four Methods of Pricing 5 5

6 1. Cost - Based Pricing 2. Competition - Based Pricing 3. Gut - Based Pricing 4. Value - Based Pricing 6

7 Cost-based pricing is perhaps the oldest form of pricing. It involves adding a fixed mark-up to a product's cost to ensure a target margin. Price = ( 1 + target margin ) x ( product cost ) Common in environments where it is difficult to know the competition s price Relatively easy to implement and use on a day-to-day basis Effective at ensuring the product is sold at the target margin May not be effective at ensuring the product achieves other important objectives ESPECIALLY WHEN TRANSFER OR OTHER ALLOCATED FIXED COSTS ARE ADDED TO THE COST FORMULA Sound Familiar This approach is a problem when launching new products 7

8 Competition-based pricing sets a product s price by adding a set premium or discount to the price of a competing product (or basket of products). Price = { 1 + ( target premium or discount ) } x ( competition s price) Common in environments where the competition s price is very visible and/ or rapidly changing Often called reference pricing Relatively easy to implement and use on a day-to-day basis Effective at ensuring the product is sold at the target premium or discount May not be effective at ensuring the product achieves other important objectives. 8 8

9 Typically based on past experiences of a senior team or leader Draws from past customer and competitor responses Easy to apply Still common approach to pricing 9

10 Situation: In mid-2000s, 3 leading gaming console producers introduced new products, ignoring the most important element in any transaction: Value ascribed by the buyer to a product Result: Prices cut prices to stimulate sales 10

11 Product fails to generate expected sales volume Price cuts to meet volume targets, followed by competition, leading to price wars Loss of time for product penetration; becoming more important as lifecycles are becoming shorter Negative press coverage and loss of credibility Results: Increased artificial focus on price Less attention on product technical advantages 11

12 Price of a product tied to attributes customers use when determining the benefits of a product/ service. Example of benefits: use of a product or service may provide dollar savings Incremental Price = some fraction of ( savings vs. best alternative ) Common for new product pricing especially in the case of very innovative products Not an approach that can be implemented rapidly; requires careful consideration of alternatives and their pros and cons Not always effective at ensuring the product achieves its objectives 12

13 SECTION 3 Value-Based Pricing 13

14 Value ascribed to an offering will not likely be the same for all segments or customers within a segment. Value to Customers Enhanced customer relationships Lower transaction costs Reduce operating costs Broaden exposure to market Efficient transfer of information International Software applied to: External Customers Internal Users National Software applied to: External Customers Internal Users Regional Software applied to: External Customers Internal Users Maximize breadth of products/ services available 14

15 - B2C : Conjoint Analysis - B2B : Value Chains 15

16 A key element is the presentation of complete offers containing all the important attributes of a product Data analysis includes: importance of each factor (attribute) and utility calculation for each offer, based on the respondents evaluation and choices The offers presented in the survey represent some possible combinations the conjoint allows inference from a small number of direct measurements 16 16

17 Which vehicle would you be most likely to purchase from among these choices? Chevy Malibu V6 engine AM/FM radio w/cd $18,500 Dodge Stratus V6 engine AM/FM radio $17,500 Nissan Altima V4 engine AM/FM radio w/ cassette $19,500 I wouldn t purchase any of these if they were my only choices

18 Surveys based on Conjoint Analysis give answers to several important questions. Will the new product meet customers approval? What factors do influence purchase decisions? How different are different market segments? What changes in the offer will have highest impact? What price is acceptable? What price maximizes sales value? 18 18

19 The value chain for customers of a software applications developer providing a strategic planning tool could be summarized as below. The incremental value provided by the tool contained two value components: Incremental revenue Cost savings Establish Objectives Translate into Strategy Convert into Plans Monitor Adjust Strategic Planning Tool 19

20 Establish Objectives Translate into Strategy Convert into Plans Monitor Adjust Key Activities Collect data on performance Incremental Value Added Reduces work needed to combine data on performance with metrics Estimated $ Value Revenue Large Small Cost Large Small Person-days: All-in cost/day - - $375 $375 Incremental Benefit: - - $3.75 K $3.75K Review performance relative to metrics defined in Planning Reduces time required to demonstrate and build buy-in to cause and effect analyses Person-days: All-in cost/day - - $375 $375 Incremental Benefit: - - $3.75 K $2.63K Trend analysis Analyze cause and effect Minimizes response time thereby minimizing lost revenues Person-days: All-in cost/day Incremental benefit: $5K $2K - - TOTAL: $5K $2K $7.5K $6.38K $12.5 K 20

21 Calculate a segment-specific premium (and weight it): reflective of the value of the product to the segment based on factors identified through internal knowledge and external customer interviews.

22 Section 4 Putting it Together: The Price/ Value Map 22

23 This matrix will help you organize your strategies & tactics to make a well-informed pricing decision Price High Medium Low Value Low Medium High 1. Premium 2. Penetration 3. Superb Value 4. Overcharging 5. Fair Value 6. Good Value 7. Rip-Off 8. Cream-Skimming 9. Cheap Value 23

24 10 VALUE/PRICE Relationship Your Company Value Rating 7 5 } Competitor s Price Rating Illustration Only Scale 0-9 = Ranking Importance of Decision Criteria 24

25 SPMG: OVERVIEW 25

26 Years of consultative pricing experience through innovation, research and hands-on management have positioned the consultants at Strategic Pricing Management Group (SPMG) at the cutting edge of value-based pricing & revenue strategies and management. The firm s main services are strategic pricing and marketing strategy, research, corporate planning and education. Each assignment is carefully managed using proven customized methodologies and techniques to meet specific client needs. We have presence in North America, Europe and Asia. Projects in the last year SPMG Offices. Partner Offices. 26

27 Pricing Strategy Range of services Research Advisory Client/Consumer Value Drivers research Price change impact research Transactional analysis/ Modélling Client Value & Satisfaction studies Product potential & Willingness to pay Client/Consumer segmentations.. Value Based Pricing Pricing Strategies & Tactics Competitive Pricing / Price Wars Implementing Price Increases Channel Pricing New Product Launch. Pricing Management Support Process Sales Force Training / Motivation Support/ Training of Pricing / Marketing teams Decision Support Systems Deployment & management of Test Platforms Product/Service Full Cost Analysis Pricing Process deployment Pricing & Competitive Intelligence & Benchmarking.. Development / Reinforcement of Pricing Capabilities Redéployment of Pricing Processes Management & optimization of client conditions Multi-Channel Pricing / Pricing Corridors Change Management Value Propositions / Design to Price Pricing Software implementation.. 27

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29 North America Canada H.Q Michael Hurwich, CEO & President Zoltan Lorantffy, Director United States Alain Meloche, Managing Partner Europe Europe Loic Le Corre, Managing Partner Western Europe - France Eric Jacolin, Partner ejacolin@youneedpricing.com Western Europe - Germany Heinz Otto Luehr, Partner holuehr@youneedpricing.com Asia China -Hong Kong Edward Chan P, Eng, Partner echan@youneedpricing.com Latin-America Brazil - Rio de Janeiro Alex Carneiro, Partner acarneiro@youneedpricing.com Central and Eastern Europe - Hungary Eniko Pongracz, Partner epongracz@youneedpricing.com Indonesia - Tangerang Erwin Husin, Partner ehusin@youneedpricing.com Mexico Mexico City Miguel Legorreta, MBA, Partner mlegorreta@youneedpricing.com 29