If Aftermarket profit averages 50% of total profit, why do we pay so little attention to pricing?

In preparation for this year's EPP Aftermarket Forum, I’ve been speaking to a number people in my network - they confirm that aftermarket departments can be responsible for a significant part of their profit contributions, some more than 50% of the total profit! You’ll agree that this seems disproportionately high if we consider how little attention typically is paid to pricing spare parts and services.

Make an investment that matters ! Register for the EPP Aftermarket Forum, before 18 April to qualify for the Early Bird Special, saving you 395 Euro.

On 19 and 20 June, we will bring together top experts in Aftermarket pricing and profit optimisation in Frankfurt to share their knowledge and experience with a select audience of senior decision makers.

Pay attention to your aftermarket pricing.

Register now - Places are very limited - only 40 places left !

19 + 20 June 2013

Westin Grand Frankfurt Hotel
Konrad-Adenauer Strasse 7
60313 Frankfurt

Marc Toussaint (Accenture Product Lifecycle Optimisation)

  • Is it possible to price your way out of the commodity trap?
  • Selling through price differentiation and creative pricing models.
  • Considering TVO and in Life Cycle Pricing to stay ahead
  • What can aftermarket learn from other industries?
  • To "kit" or "unkit" that's the question : How to give customers the feeling that they have more choices;
  • Is solution selling dead? 
  • Does Internet have a role to play in pricing initiatives in the aftermarket?
  • How to get where you should be: The pricing structure in your organisation: importance of alignment of strategy vs. technical execution.
  • Your pricing resources: How do you organise your pricing department?  Who should be in your team?
  • How do you handle your own sales force's fear of competitor's lower prices?  Get the sales guys back on your side.
  • Pricing KPIs : What should you be measuring?  What can you do with your pricing data (forecasting, value mapping,...)
  • Pricing across borders: how to protect your value. How to deal with low cost, local alternatives;
  • European Competitive Law and its latest developments - do's and don'ts in a competitive environment.
  • Are you creating or destroying value with discounting schemes?  What if your loyalty programs/incentive programs don't work?
Kevin Wheatland - Global Service Industry Expert (Owner Service Pulse International, former Ericsson, Liverpool John Moore's University, AFSMI);

Merab Dekano - Price optimisation, Price execution and Price analytics expert (former JCI, Bombardier, Caselex S.a.r.l., Mobis Parts Europe);

Marco Bertini - Assistant Professor of Marketing at London Business School.  His work has been published in academic and practitioner journals including Marketing Science, Journal of Consumer Research, and Harvard Business Review.

and many more...

For more information, visit our EPP portal site.

Contact me to benefit from the Early Bird Offer of 1.100 Euro !
+32 51 32 03 72

Pricing impact management hits boardroom

Failing to keep up with a rising interest in pricing strategy will leave manufacturers sidelined as commoditised suppliers with eroding margins says Niels Skov, managing director, Europe at revenue management solutions provider Model N.
Niels Skov - Model N
In today’s manufacturing businesses, optimising supply chain and production processes are recognised as strategic issues which for some time have been firmly established on the boardroom agenda. By contrast, until recently, pricing and profit processes have been among the least automated across manufacturing industry, with little or no visibility at C-level.
Spread sheets, word documents and even pen and paper have remained dominant, with rudimentary management, oversight and execution of pricing plans and policies. As a result, it has not been unknown for sales staff in large multi-national businesses to casually offer discounts which have severely eroded margins.
This has not only pushed individual customer profitability unwittingly below target but in the worst cases has resulted in net losses – potentially catastrophic in highly-competitive industries such as fast moving consumer goods where standard operating margins are tight.
However, as the latest European Pricing Platform’s Pricing and Profit Optimisation Forum held recently in Cologne highlighted, the importance of optimising pricing and profitability strategies is undergoing a radical reappraisal. Attendances were up 60% on the previous year, including a higher proportion of director-level attendees with direct responsibility for pricing issues.
Take control
Much of the conference debate centred on how to get key departments to provide the necessary visibility for senior management to take control. This represents a fundamental shift for many businesses and demands board-level sponsorship. But for those successfully undertaking such transformational change, the rewards are proving immense.
This was emphasised by the findings of a survey of attendees, which showed that more than one quarter (27%) believed greater oversight at senior level – getting pricing on the CEO’s/CFO’s agenda – would ensure corporate performance was both more competent and effective.
This was reinforced by the further finding that almost one half (46%) of respondents believed such improvement also required a structured and co-ordinated pricing team, an initiative which can only be effective with board-level sponsorship.
There is another dimension here. Many of the manufacturing businesses attending the Forum operate an indirect sales model and much discussion took place around how to own and drive different aspects of pricing execution in a way which enables distribution partners to become true value-added resellers rather than simple box-shifting logistics companies. By enabling collaboration in demand generation through more effective management and incentivisation, this is providing the basis for mutually-profitable, long-term relationships.
The question is no longer one of “is it important?” but “how do we do it?”
In response, one of the key fundamentals is to work with good quality data. Across business departments, there is a tendency for isolated, self-optimised islands to appear in the absence of consistent processes or support tools.
This can result in momentum for change – but too often in the wrong direction. Centralising the process of setting and executing a pricing and profit strategy demands a re-design and re-engineering of their business processes.
For many businesses facing this challenge, a good place to start is to achieve the necessary degree of control. This means putting the right technology in place as part of a defined process to record all aspects of pricing transactions.
Not only will this guarantee full auditability, it will provide control and consistency over rebates, free goods, discounts and other aspects of pricing. By connecting this with customer and product master data, a company can ensure visibility and traceability for every pricing deal.
Behavioral change
Typically, this will require a change of behaviour and mindset throughout key departments. A systematic approach is needed to help staff move away from instinctively thinking about discounts to how to ensure the delivery of value added services in creating mutually beneficial deals. This requires pricing teams to take a strategic view of how customers define value and how as providers they can deliver it in a way that makes commercial sense.
Enabling a pricing team to think in this way relies on building an in-depth understanding of how each customer is trying to secure competitive advantage and then providing one or more of the key components in achieving this goal. Ideally you should aim to make your products and services embedded and indispensible in realising competitive advantage as perceived by the customer. Become a strategic partner.
The increasingly stark alternative is to go down the road of discounts and rebates, eroding margin as a commoditised supplier, offering little or no real differentiation.
Revenue management sits at the heart of delivering a strategic approach to pricing and profit control. It is already firmly established in the airline and hotel management industries and is becoming a competitive ‘must have’ capability in high tech and life sciences.
Businesses are becoming aware of how lack of control can impact badly on profitability, market capitalisation and shareholder value.

Read to original article on http://www.themanufacturer.com/articles/pricing-impact-management-hits-the-boardroom/


Get Ready for the New Era of Global Manufacturing

The global manufacturing sector is on the threshold of a dynamic new phase that will provide renewed opportunity for manufacturing firms — and a host of new challenges. Incumbents who can rise to the challenge — and upstarts who may find lower barriers to entry — could do very well, indeed.

What has changed to encourage such an upbeat view of manufacturing? We see two forces that will dominate global manufacturing in the coming decade. First we see major shifts in demand: developing economies such as China and India are morphing from the world's source of low-cost manufacturing capacity to the world's best market opportunities. In addition, customers everywhere are looking for more — including more services — from manufacturers. Second, we see a raft of innovations that will alter how products are designed, manufactured and sold — everything from nanotechnologies to 3D printing.

These forces will shift the dynamics of the global manufacturing sector. They will not, it must be noted, alter how the role of manufacturing evolves as economies develop. Manufacturing remains the driver of growth and employment when nations are developing — witness what's happening in China — and becomes less important as economies become wealthier and their service sectors account for the bulk of growth and employment. Then, manufacturing's most important role is as a driver of innovation, trade, and productivity. The new era will give manufacturing companies an opportunity to help their host economies in all of those areas; it will create high-skill jobs, particularly in design, big data, and other service roles, but not masses of production-line positions.

Demand is Shifting

Let's take a look at the demand shifts that will define this new phase. Overall demand is fragmenting, both geographically and in terms of what customers require — more options, faster product cycles, more customization and after-sale service. Consumers want more variety, more frequent upgrades, and greater customization. Increasingly, customers demand more after-sale service; this is the norm now in business-to-business sales, but will spill over to consumer goods, too, thanks to some of the technology advances we'll talk about below.

The megatrend in demand, of course, is the shift to developing economies. It is well known that China, India, and other developing economies in Asia and Latin America have been leading global growth. What is less well understood is how quickly demand is following that growth. According to recent McKinsey research (see "The $30 Trillion Decathlon"), consumption by developing economies could rise from $12 trillion annually in 2010 to $30 trillion in 2025, by which time these markets could account for nearly 70% of global demand for manufactured goods. Importantly, this emerging market demand is also highly fragmented; not only is there a huge difference between what the customer wants in Indonesia and India, but also within countries. McKinsey has identified more than 20 distinct submarkets in China, for example.

Innovations Are Changing The Way We Design Products

On the innovation front, the opportunities are more diverse, but equally powerful. We see advances in materials, processes, and information technology that will make possible entirely new kinds of products and can radically alter how manufacturers operate. Nanotechnologies will potentially create a new era in microelectronics. Materials such as lightweight steel and aluminum and carbon fiber are being introduced into auto manufacturing, helping to create new lightweight vehicles that will soon be seen on the streets of Asia's megacities. All over the world, automakers are mastering new drive train technologies. Pharmaceutical companies are mastering bio-engineering techniques that will help develop personalized medicines.

Many of the most interesting advances are in new production processes and new information technologies. So-called additive manufacturing techniques such as 3D printing, which create objects by combining small particles rather than by casting or stamping, open up all sorts of possibilities. More than 6,500 3D printers were shipped in the United States last year. They are used mostly for assembling models and prototypes, but also have been used to make intricate aerospace components and even replacement human organs. Robots are gaining new capabilities at lower costs and are increasingly able to handle intricate work. And big data is being applied across the manufacturing value chain, starting with billions of bytes of data collected from social media sites to understand what products to build, guiding production machinery on the shop floor, and monitoring products that are in use. With sensors and transponders, products can constantly feed performance data back to the manufacturer, enabling all sorts of new after-sale services.

These opportunities arise in a far more uncertain environment than existed before the Great Recession. Commodity prices have risen, wiping out the declines that marked most of the 20th century and wages are rising rapidly in what have been regarded as low-wage locations such as coastal China. Increasingly frequent natural disasters such as the Japanese tsunami have made clear how risky complex global supply chains can be.

The Dynamics of Global Manufacturing Are Shifting

In this environment, manufacturing companies are rethinking their location strategies and not simply following the path of lowest wages. Rock-bottom wages matter a lot in some segments, such as garment manufacturing, but in most manufacturing industries, hourly labor is less than 20% of costs. A bigger challenge for many manufacturers is access to high-skill talent, both for the shop floor and for a growing number of service-like occupations within manufacturing.

It is important to remember that manufacturing is not monolithic and that there is a wide range of manufacturing industries — from the very labor-intensive and resource/energy-intensive to the very R&D intensive. We identify five major groups (see chart: "Manufacturing is Diverse"), in which the inputs that define success vary. Advanced economies, for example, depend more on high-skill talent to support what we call "global innovation for local markets" in industries such as pharmaceuticals and autos. Advanced economies run a $726 billion surplus in such goods, against a $342 billion deficit in labor-intensive goods. When we look at the needs of different manufacturing industries and the sources of growth in manufacturing demand, we see that while "re-shoring" — shifting some jobs back to wealthy nations — is a welcome development that may help restore some of the huge losses that manufacturing suffered in the past decade, it is unlikely to reverse the long-term trend in manufacturing employment.

To make sure location decisions line up with these input needs, we recommend a more nuanced "total factor performance" approach. This takes in not only all the variables that can affect the total landed cost of a product (transportation and labor costs, access to commodities, energy prices, talent availability, proximity to suppliers, customers, and research clusters, regulation etc.), but also the risks.

A nation that has low labor rates and energy prices, talent availability, proximity to suppliers, customers, and research clusters, and favorable regulation today may not have these things tomorrow. Manufacturers must ask: what is the risk of being trapped with unproductive capacity by locating here? Government policy is a powerful force in such consideration; it can remove barriers to expansion and help develop a nation's talent and infrastructure, or it can sharply limit flexibility and market access — despite today's webs of free-trade agreements. Supply chains and footprints must not only reach all the right places, but they also must be resilient.

The net of all these changes, we believe, will be a new kind of manufacturing company. To take advantage of the opportunities available to manufacturers — and to avoid falling behind — companies have to become agile, networked, analytical, and data-driven enterprises. Manufacturing leaders will need to manage not only across geographies, but across their own organizational silos and beyond to a virtual ecosystem of suppliers and partners. Many companies will need to build new capabilities. For example, in a world of rising and complex risk, they will need to adopt planning systems that don't rely on point forecasts, but use scenario planning. Companies will need to develop skills in big data and to compete in a world where the supply of high-skill talent is tightening, manufacturers will have to become much better at attracting, developing, and retaining talent.

This new era of manufacturing will provide opportunities for global leaders in the sector to tap into new markets and new ways to innovate. It will also see the arrival of new players — upstarts and new global players from developing economies. This contest will continue to drive productivity and innovation around the world.

Read the original article on: Harvard Business Review