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.

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

Profits jump when CEO’s take an active role in pricing

Pricing power drives higher profits when C-level executives take an active leadership role in pricing and put a pricing organization in place, a worldwide study by Simon-Kucher & Partners reveals.

Strong C-level commitment to pricing – combined with a dedicated pricing organization – is essential to protect and boost profits in today’s low-growth economic climate. That is the key insight from Simon-Kucher & Partners’ Global Pricing Study 2012, an in-depth survey of over 2,700 executives and managers from over 50 countries.

“Staying in a pricing ‘comfort zone’ is no longer an option for C-level executives in the current economic climate,” said Georg Tacke, CEO of Simon-Kucher & Partners, the world’s leading pricing consulting firm.

“Over 80% of companies face intense pricing pressure from competitors and customers, on top of the risk of inflation from volatile commodity prices,” Tacke said. “This underscores the urgency for C-level executives to get involved now.”
Companies whose C-level executives take an active role in pricing are 35% more likely to have high pricing power, and 30% more likely to expect strong EBITDA growth over the next three years, the study showed. Pricing power is the ability of a company to get the prices it deserves for the value it delivers to customers.

“Pricing power begins at the top of the organization,” Tacke said. “When C-level executives turn their attention to pricing, their companies are more likely to have a stronger profit outlook, more likely to raise prices, and more likely to make those price increases stick.”

C-level involvement in pricing means setting the right objectives and incentives, driving the organizational and cultural changes to support better pricing, and taking more responsibility for pricing strategy as a whole. “It's a leadership obligation for the executives, not a day-to-day operational one,” Tacke said.

Companies with active C-level involvement in pricing are 18% more likely to put through a successful price increase, according to the study. But more importantly, they are 26% more likely to get higher margins from their price increases than companies without C-level involvement in pricing.

“Every point of margin you can get from a price increase is precious in today’s tough climate,” said Matt Johnson, the managing director of Simon-Kucher’s San Francisco office. “That’s why the executives not only need to put more of their own time and energy into pricing, but also equip their companies to do the same.”

That means creating a dedicated pricing organization. The study showed that such organizations also have a clear impact on a company’s ability to translate pricing power into higher profits.

“Don’t underestimate the importance of creating a strong pricing organization,” Johnson warned. “Creating and exercising pricing power used to be luxury for some companies. Now it has become an essential survival skill. You need end-to-end coordination, from strategy to analytics to interpretation and implementation.”

Companies with dedicated pricing organizations are 15% more likely to increase prices than companies which lack one. They also pass on 11% more of their planned price increases than companies without a pricing organization.

But Tacke and Johnson point out that the greater emphasis on pricing and the accompanying organizational changes are not merely survival mechanisms.

“You shouldn’t retreat back into your pricing ‘comfort zones’ when economic growth returns to historical levels,” Tacke urged C-level executives. “The attention you pay right now and the organizational changes you make will reward you even more when growth picks up.”

About the Global Pricing Study 2012
The Global Pricing Study 2012 included 2,700 high-level decision makers from companies in all major service and manufacturing industries across Europe, the Americas, and Asia. The survey covered pricing organization, pricing power, inflation management, profit orientation, and profit outlook. Simon-Kucher & Partners conducted the study in collaboration with the Professional Pricing Society (USA) and the IE Business School (Spain).

Study authors
Dr. Georg Tacke is the CEO of Simon-Kucher & Partners.
Matt Johnson is the managing director of Simon-Kucher’s San Francisco office.

Read the original article here: Simon-Kucher & Partners website

Welcoming New EPP expert and technology partner : Eucon

On the 1st January, 2013, Eucon became an expert and technology partner of the European Pricing Platform (EPP).

The European Pricing Platform (EPP) with its headquarters in Belgium was initiated in 2004 and has since developed to become the leading European knowledge base for optimising prices and profits for decision-makers, pricing managers and company directors. The aim of the platform is to develop and share pricing expertise and best practice scenarios. The EPP provides support for professional training for persons and companies involved in the optimisation of prices and profits.

The ever higher competitive pressure in the field of automotive aftersales, the number of variations and complexity of products has led to a growing demand for pricing expertise. Eucon is a leading lifecycle manager and pricing specialist for automotive replacement parts. The company has its own pricing management tool and comprehensive expert knowledge on how car and parts manufacturers can achieve a competitive advantage with product management and pricing.

The Eucon Pricing Manager (EPM) is the first strategy-based price optimization solution designed specifically for the field of automotive aftersales. This highly specialized pricing management tool enables the systematic development of price strategies and the optimization of sensitive pricing processes in the lifecycle of a replacement part.

EPM combines reliable and accurate data from our PartsPool® product information system with rule sets for professional pricing management and business intelligence gained from market analysis. With more than 60 million data sets, PartsPool® is a unique and industry leading source for comprehensive product and price information.

EPM enables car and parts manufacturers to permanently optimize prices throughout the parts' lifecycle. Clients are able to systematically develop pricing strategies and optimize pricing processes by automatically pricing the majority of their replacement parts.

read the original article here : http://www.eucon.de/automotive/en/News#76

News announcement from the European Pricing Platform

Brussels, London, January, 2013

Pricing capabilities AND maturity seen as key competitive advantage for High Tech in 2013!

• Pricing Capabilities and maturity are essential to securing additional revenue and margins in a challenging market;
• With market forecasts down organizations must become more react and proactively protect margins;
• C level decision makers must tackle pricing as a strategic initiative to harvest full benefits.

2013 is set to be a difficult year for high tech companies, IHS-isuppli recently adjusted their forecasts downwards by as much as 2.3%; Semi-conductors market was identified as most affected. (IHS Downgrades 2012 Semiconductor Forecast to 2.3 Percent Decline: Five out of six major application markets for semiconductors will shrink this year; December 6, 2012 DALE FORD)

The global recession that followed the financial crisis of 2009, and the weak recovery that is now underway, has brought home the need for new business models, more sophisticated channel revenue management and organizational shifts to maximize a successful response to market conditions.

Organizations are facing pressures on margins and profitability and therefore in turn questions as to the validity of their pricing strategies. 2013 will require them to look for better approaches, skills and technologies:  In a recent global study from Ernst & Young on risks and opportunities, pricing pressures have climbed from fifteenth risk in 2011 to fourth position in 2012. (Five is considered below the risk radar)

Cost cutting and national austerity programs seem to be compounding the slow recovery process and despite the impact of poor pricing strategies and / or execution being well understood, and felt throughout the organization, the discipline remain dealt with mostly at an operational level.

If pricing and profit optimization are a concern for you and if you are looking for better ways to add value to your organization and directly impact profitability - register http://goo.gl/uT9Y9

EPP, a ‘not-for-profit’ knowledge exchange place focused to support business management, pricing and profit optimization professionals and CxO-level executives in Europe over a variety of industries and Model N, leader in industry specific solutions for pricing and profitability optimization trusted by ST Microelectronics, NXP Semiconductors, Nokia, Dell, FCI, Micron, Avago Technology, Texas Instruments and many others are this year holding their 2^nd annual forum bringing together experts and decision makers from all over Europe looking to share know-how and also find tangible best practices to take back into their respective companies.

The 2^nd Annual Pricing and Profit Optimization Forum on High Tech:

 4^th – to the 6^th of February 2013 at the Schloss Bensberg 5*, Cologne, Germany.

This forum will bring industrial leaders and innovators together to discuss the latest issues and developments in the pricing and profit optimization area. Strategic pricing decisions have never been more important for many organizations. We want to bring participants insights and possible answers to the pricing challenges facing many today. With an interactive format combining real-life case studies, informal debates and practical workshops, participants will gain the inside knowledge and industry insights in order to benchmark their pricing and profit optimization strategies, maintain critical competitive advantage and ensure maximum value.

 

“Pricing is a powerful and proven strategy for improving top-line growth and profitability, yet few organizations know how to do pricing well,” said European Pricing Platform president Pol Vanaerde.

“The economy is recovering but challenges remain in terms of the speed in which this is happening as well as some of the new buying and trading behaviors and expectations the crisis has brought with it.  As such pricing and selecting the right strategies as well as ensuing accuracy, flexibility and loyalty across the entire value chain remain the secrets  that unlock  profitability, market share and business agility,” said Model N Europe General Manager Niels Skov. “Our Partnership with EPP’s in holding this industry specific forum is testimony of both the level of interest we are finding as well as the growth of the “pricing movement”; the event will provide delegates with many success stories that uncover its strategic value.”

The EPP and Model N pricing forum for High Tech executives is the only of its kind: focusing on strategy, planning and execution with speakers from Telefónica, Barco, FCI, Cypress Semiconductors, Hewlett-Packard, and many more.

Unlock real bottom line value and exceptional growth and profitability with your pricing and profit optimization strategy.

Practical information

Event name: The 2^nd Annual European Pricing and Profit Optimization Forum on High Tech

Venue : Schloss Bensberg 5*, Cologne, Germany

Date : 5 – 6 February, 2013 (4^th of February complimentary pre-event by Model N)

Rate : € 1.395,00 for full forum attendance, second person can register for € 1.225,50. Bulk rates for groups are also available on demand.

Language : English

Further information or registration: Britt Dejager:  +32 (0) 51 320 372 // britt.dejager@pricingplatform.eu

Website for information :

http://goo.gl/uT9Y9

Press pass : You are welcome to attend and find out more on the  pricing challenges for the High Tech industry in 2013, where top-organizations are exceptionally sharing their business-cases in order to improve profitability.   In return to the free ticket we expect a post event press release.

Become official blogger: European Pricing Platform offers the limited number of 4 Event Blogger tickets for the event. Bloggers are selected based on: blog content, readership, language and influence.