Happy Holidays Message from PPS

Zilliant Named An Innovative Software Company To Watch for 2010

Another exciting announcement from PPS Member Company Zilliant:

Zilliant Named An Innovative Software Company To Watch for 2010

Leading market research firm recognizes Zilliant’s price optimization technology as a visionary information access solution

Austin, TX – October 5, 2010 – Zilliant, the leading provider of price optimization and margin management solutions for B2B manufacturers, distributors, high-tech, and industrial service companies, today announced the company was named as a recipient of IDC’s Innovative Information Access Companies To Watch Under $100M1. Zilliant is recognized for their technology’s ability to help sales teams improve decision processes by providing pricing guidance directly to the point-of-sale.

"Smart pricing is one of the most potent competitive strategies a business can deploy in today's intelligent economy," the IDC report highlighted. "[Zilliant’s] software-as-a-service offering provides pricing guidance to sales professionals at the point of a deal negotiation...and drives measurable improvement in performance."

“It is an honor for Zilliant’s technology to be receive this award from IDC—especially with their commitment to recognize companies that have demonstrated real-world customer benefit,” said Rafe VanDenBerg, vice president of strategic marketing at Zilliant. “Numerous in-market validation studies conducted over the past five years have consistently demonstrated that our pricing science and technology helps companies win more sales at higher margins.”

Zilliant's Margin Maximizer optimizes prices, reduces risk in the marketplace, minimizes over-discounting in the field, and drives dramatic improvements to operating margins. As the only B2B solution capable of calculating accurate, segment-level price sensitivities from readily-available transaction data, Margin Maximizer is proven to help businesses win sales without going too far or giving-up too much. Zilliant’s analytics solution, Margin Insight, delivers deep visibility into over-discounting patterns, quoting errors, cross-selling opportunities, off-invoice margin erosion, and cost-to-serve variances.

IDC’s “Innovative Companies Under $100M to Watch” reports are a qualitative evaluation of a set of vendors within a specific market—they are not a stack ranking nor do they represent an exhaustive evaluation of all companies in a segment or a comparative ranking of the companies in the report. IDC solicited entries from vendors of less than $100 million that exemplify specific key trends (selected by analysts) that are driving change in a specific software market. Vendors then submitted case studies that exemplified one of the trend used as the basis for the award. These case studies were evaluated individually and independently by related market analysts across several pre-determined criteria. The teams then met to review the scores. The case studies submitted for review had to demonstrate that the technology was available, able to be implemented and provided real-world benefits to the customer.

Zilliant has been recognized in the Manufacturing Business Technology Top 40, S&DCE 100, Red Herring 100, Red Herring 200, Austin Business Journal’s Fast 50, and the prestigious Deloitte Texas Technology Top 50.

To keep on top of Zilliant developments, news, events and happenings please subscribe to Zilliant’s RSS Feed.

PPS Announces Inaugural Global Pricing for Executives Summit in Brussels

PPS Announces Inaugural Global Pricing for Executives Summit in Brussels

PPS 2010 Global Pricing for Executives Summit in Brussels - 16 November 2010

A Venture Capitalist's View on Pricing Fixing and Collusion

I ran across this article and thought it would be interesting to share. This is one area of pricing that we discuss in many different contexts, but this gives us an interesting perspective outside of the global pricing arena and into how pricing can and does affect small businesses and start-ups.

For background, you need to start here, with "AngelGate": "So a Blogger Walks into a Bar."

Synopsis: A successful small businessman walks into a room full of some of the most powerful angel investors in Silicon Valley - people he counts among his friends - only to find that the mood is less than friendly. After assessing the situation, he comes to the following conclusion:

"So what’s wrong with this?

"Collusion and price fixing, that’s what. It is absolutely unlawful for competitors to act together to keep other competitors out of the market, or to discuss ways to keep prices under control. And that appears to be exactly what this group is doing."

Mark Suster, a highly successful two-time entrepreneur turned venture capitalist (who is also an active blogger who has followed the issue closely) provided an interesting commentary on this subject (in his blog "Both Sides of the Table") in which he looks at this issue from both sides and gives entrepreneurs advice on dealing with investor price fixing: "What Entrepreneurs Should do about Price Fixing"

He argues that A) the VC community (like AngelList) is small and B) yes, they talk because they are also interested in the same industries. One the other hand, investors are going to talk to other investors to help them make decisions on investments:

"My assertion was that information flows outside of their process. People call each other. People call their friends. They’re not in search of price fixing or collusion, they’re in search of diligence information about the company."

So from a pricing perspective, what is the absolute truth? Probably something in the middle - depending on which side you are coming from. As many in the pricing profession know, changes in American Pricing laws have challenged or effectively eliminated formerly convenient and narrow rules of thumb, resulting in a great deal of pricing freedom. But how far is too far? (If you are joining us in San Francisco next month for the Fall Pricing Conference, you should consider registering for a new workshop addressing this issue: "Making Pricing Flexibility Under the Law Work for You")

Any pricers out there that have been following this story and want to weigh in? I am interested to hear what others in the pricing community think of this unique pricing debate!

Want more? "AngelGate: The Sequel"

United Rentals Inc. Deploys Zilliant Solutions to Enhance Pricing Operations Across Branch Network

Check out this exciting announcement from PPS Partner and Member, Zilliant:

United Rentals Inc. Deploys Zilliant Solutions to Enhance Pricing Operations Across Branch Network

World’s largest equipment rental company adopts price optimization to improve rental rates management across North America

Austin, TX – September 1, 2010 – Zilliant, the leading provider of price optimization and margin management solutions for B2B manufacturers, distributors, high-tech, and industrial service companies, today announced that United Rentals, Inc. (NYSE: URI) has deployed Zilliant Margin Maximizer and Margin Insight solutions across its integrated network of over 550 branch rental locations in 48 states and 10 Canadian provinces. United Rentals is also piloting Margin Manager with an expected full roll-out in early 2011.

“As the market leader, we sought to employ a tool that could offer us a rigorous pricing methodology to support our customer segmentation strategy and increase the effectiveness of our sales force,” said Michael Kneeland, CEO, United Rentals. “We selected Zilliant because the company has demonstrated success with their price segmentation and statistical scientific software technology that specifically addresses the pricing challenges we face every day.”

United Rentals deployed Zilliant Margin Maximizer to improve the quality and accuracy of customer rental rates to maximize return on assets. District and national account managers will leverage Zilliant Margin Manager to gain detailed visibility into the pricing performance of rental agreements and streamline the customer rental experience. Zilliant Margin Insight provides the organization clear visibility into margin and revenue performance across all branches, enabling them to take necessary action to on pricing opportunities quickly. Sales teams in the field also have the ability to access market-based rate guidance directly from mobile devices, ensuring quick and accurate transactions.

Zilliant's industry-leading Margin Maximizer and Margin Insight price optimization and management solutions improve all facets of B2B pricing — segmentation, analysis, setting and execution — increasing margins and maximizing profits. Margin Maximizer optimizes prices, reduces risk in the marketplace, minimizes over-discounting in the field, and drives dramatic improvements to operating margins, while its analytics counterpart, Margin Insight, delivers deep visibility into over-discounting patterns, quoting errors, cross-selling opportunities, off-invoice margin erosion, and cost-to-serve variances.

“Partnering with United Rentals reinforces Zilliant’s position as the leading provider of price optimization solutions in the equipment rental space,” said Greg Peters, CEO, Zilliant. “We are excited to work with the largest company of this type in the world, and are pleased to see United Rentals experiencing significant margin lift and greatly improved financial performance because of our technology.”

United Rentals, Inc. will present an in-depth look at its approach to rate optimization at Zilliant’s Executive Pricing Summit, September 22 in Las Vegas. The free, invitation-only Summit will focus on maximizing margins and minimizing risk during a recovery. Request an invitation here.

To keep on top of Zilliant developments, news, events and happenings please subscribe to Zilliant’s RSS Feed.

About United Rentals
United Rentals, Inc. is the largest equipment rental company in the world, with an integrated network of 554 rental locations in 48 states and 10 Canadian provinces. The company’s approximately 7,400 employees serve construction and industrial customers, utilities, municipalities, homeowners and others. The company offers for rent approximately 3,000 classes of equipment with a total original cost of $3.8
billion. United Rentals is a member of the Standard & Poor’s MidCap 400 Index and the Russell 2000 Index® and is headquartered in Greenwich, Conn. Additional information about United Rentals is available at unitedrentals.com.

About Zilliant
Zilliant is the leading provider of price optimization and margin management solutions for B2B manufacturing, distribution, high-tech, and industrial service companies. Zilliant uses existing transactional data to improve decisions across all facets of price analysis, price setting and execution. Zilliant helps companies achieve the best pricing possible on every deal, agreement, and price list, increasing profits by tens of millions of dollars. Headquartered in Austin, Texas, Zilliant is a privately held company. For more information contact Zilliant at 877.893.1085 begin_of_the_skype_highlighting              877.893.1085      end_of_the_skype_highlighting or visit www.zilliant.com.

Simon-Kucher and Partners Industry Pricing Series

This article is one of a long series of pricing articles that have been running in the Monthly PPS Newsletter. Called the "Industry Pricing Series" by Simon-Kucher & Partners, these articles offer numerous pricing strategies that, although explained in the context of specific industries, can be applied in pricing practices across multiple specialties and practice areas.

Introduction:

Ever wonder how Disney pricers think? In this article, the authors explore the top four challenges faced by pricers in the theme park and travel industries, as well as steps that pricers in these and other industries can take to effectively manage their pricing in challenging environments. Damien Robert is the Director in charge of Leisure & Tourism for Simon-Kucher & Partners and former Head of Pricing of Disneyland Resort Paris. Guillaume Alexandre is a Senior Consultant at Simon-Kucher & Partners. Both can be reached at www.Simon-Kucher.com.

Theme parks are exciting places for all who visit them, but the opportunity for thrills isn’t just reserved for the customers. Behind the scenes there is just as much to keep you occupied and for the head of pricing there is no exception. Pricing for a theme park is a challenging endeavour; it is a key revenue driver and the variety of problems puts it high on the CEO agenda. The top four on the list are:

• The accurate measurement of willingness to pay for different segments… to avoid the inefficient 3% price increase rule


• The stimulation of demand by creating urgency to visit and increasing the repeat purchase rates... without losing customer trust


• The constant adaptation of price offers to fully capture the willingness to pay of each customer segment... while keeping your offer simple and clear to everyone


• The temptation to make easy "on-site" profits... that can impact overall experience perception

1. The accurate measurement of willingness to pay for different segments… to avoid the inefficient 3% price increase rule

In many companies, the overall pricing strategy is driven by company financial targets, which are themselves derived from the mid-term plan and the decisions to invest in new rides. Yet for theme park activities the quality and accuracy of price management can be considered particularly important. There are two main reasons for this: the cost structure and the market demand elasticity.

Firstly, the small variable costs that each additional customer incurs can typically be more than compensated by the additional profits these customers will bring with on-site expenses such as food, beverages and merchandise purchases. When this is the case, ticket price drops can be profitable, even with “limited” price sensitivities.

Secondly, the total market size is not defined for such leisure activities. In many industries, a price drop would only allow a company to make short-term profits, since competitors would quickly react and all the market players would still have to share the same overall demand. But theme parks are pure leisure “nice-to-have” activities and a simultaneous price drop of all players can sometime result in an overall significant increase of demand and of industry profits. Conversely, a systematic price increase could be a very big mistake which may kill your business.

However, price increases may be necessary to fund investment for new attractions. These are often a good way of increasing volume capacities, duration of stays and frequency of visits. Thus, to achieve this without risking a park’s total demand, price decisions have to be based on an accurate measure of price sensitivity by customer segments.

A park, with a natural customer portfolio composed of mainly international and distant customers, has thus been able to make additional profits from a new product range dedicated to the local demand. The population living in the area was interested in coming but the entrance ticket price was a much higher barrier to visit than for international tourists. A significant (more than 40%), structural but fenced (not accessible to other customer segments) price decrease has generated new local demand flows without lowering the revenues made with other customer segments. The lower price ticket range was not available on high attendance days and sales and communication actions were not very visible to other customers. (For example, ticket prices were made accessible online only after postcode identification and advertising done through local radios and panels.)

This kind of segmented pricing is essential for profit growth but requires in-depth customer surveys with very solid business casing.

2. The stimulation of demand by creating urgency to visit and increasing the repeat purchase rates... without losing customer trust

Why should customers come to your park? Proactively stimulating the demand is a necessary job when you are selling "nice-to-have" products which are not essential to your customers.

In the leisure industry, many businesses play with customer behaviour by laying special emphasis on unique events and highlighting the risk to miss an opportunity that may never appear again. Unique concerts or major sport competitions are indeed "perishable" opportunities for customers who rush towards booking channels and outlets. How then to turn a theme park entry ticket into a perishable opportunity?

More than ever, parks are creating marketing events, seasons and anniversaries to suggest that visitors should come more often. However, the core offer of a park is generally not perishable. Disneyland Park in California is now more than 50 years old and the rides are only changing incrementally. This does not justify monthly visits for customers.

With nothing perishable to offer, playing with pricing tactics may be an alternative. Promotional offers and innovative multi-visit products can help to drive customer behaviour and generate new visits. This is not something that easy.

To launch the appropriate pricing initiative and really get money out of it, knowing the current customer mix and understanding the purchase behaviour of visitors is key. Experience shows that not all companies succeed in implementation.

A water park in Northern Europe launched an annual pass at three times the price of a single ticket, with only the knowledge that the standard average number of visits to a water park was 1.2. Sales clearly hit the roof, but it destroyed the experience and the revenues. Indeed, a very quick “customer survey” at the entrance of the park later showed that 50% of the total attendance was already driven by people coming more than six times per year and that these people had found in the new product a very good way to save money... Such breakthrough product launches require detailed customer insight and financial modelling. Furthermore, international leisure companies should be aware that each destination has to face specific customer behaviours and that nothing can be “copy-pasted” without taking serious risks.

Far better results were achieved by another leisure company who sent free nominative invitations to targeted customer families. The free invitation was only given to one family member and it had to be used for specific dates only. The letter was packaged in a premium way. The promotion was thus creating a unique event for the family who had to balance the pain of losing this perishable present with the cost for all other entrance tickets. On-site customer surveys helped to measure the impacts and to calibrate future promotion campaigns.

In conclusion, promotions can be a very powerful tool to stimulate the demand, but only on the conditions that the behaviour of customers is carefully analysed and that the promotion is kept simple. It is really important to focus on key offers and not to blur customer perception with very different messages coming from hundreds of small tactical actions. Otherwise, all promotion efficiency is jeopardised and customer trust is gone.

3. The constant adaptation of price offers to fully capture the willingness to pay of each customer segment... while keeping your offer simple and clear to everyone

Who is it that goes to Disneyland Resort Paris? Possible answers include families wanting activities that appeal to the whole group, those that are seeking thrills from the more extreme rides and those that buy into the fantasy aspect of the Disney characters. The customer base is thus very wide and within it there are very different income profiles, ranging from famous international soccer players to teenagers of Paris suburbs.

Therefore, one of the most important price management challenges is to develop and price all the offers that will capture the full willingness to pay of each customer segment.

Building and displaying a wide range of offers with increasing value and price levels are essential for two reasons. Firstly, it allows any customer to find an offer which corresponds to the price he is ready to pay. Secondly, it becomes easier to up-sell as you always have something slightly more attractive and expensive to put forward. To succeed, the value gaps between the price points must be really tangible, otherwise smart shoppers will systematically go for the less expensive offers.

For instance, seating categories are natural differentiators for sports events or concert tickets and allow the exploitation of different levels of willingness-to-pay. In the case of leisure parks, the differentiated range of offers is instead developed through additional activities like shows, food, beverages and merchandise. It is possible to have lunch in Disneyland Resort Paris from 9.95€ for a quick-service menu to a full experience with Princes and Princesses dancing around you for 55€ per person. Similarly, one can exit the park with a simple Disney pen as a souvenir or a Chrystal Castle.

4. The temptation to make easy "on-site" profits... that can impact overall experience perception

Once a visitor is in a park, sports arena, or movie theatre complex, the temptation is high to leverage this captive audience with aggressive pricing. However, numerous surveys have shown that some exaggerated prices were clearly impacting the intention to visit again and to recommend to friends the activity or the destination.

Again, a deep understanding of customer purchasing behaviour will help to limit the negative impacts. On-site visceral factors come into play and customers are ready to make additional expenses they may not have been prepared to before coming. But their price sensitivity is likely to increase if they perceive a loss of freedom. It is important to understand what is accepted by the customer and what is not.

Generally speaking, all the “need” expenses are very sensitive, while the “chosen” expenses are less problematic. For “need” expenses, a progressive range of value and price levels can reduce the negative perception. Consequently, theme parks should be able to provide low price alternative offers for lunch, but can try to extract more from the merchandising products.

Taking the right pricing decisions towards on-site spending requires having a global pricing team optimising those decisions, which is often not the case with BU centric price optimisations.

Conclusion

Pricing is a key element of the revenue optimisation for theme parks and leisure activities. It can only be achieved with intensive customer surveys and strong analytics. Pricing in leisure parks is really fun and exciting, but can turn to a nightmare if you do not have the proper tools and knowledge.

World Cup Pricing Questions

Here is an interesting article I came across recently which argues that FIFA needs to re-analyze their pricing structure in order to not alienate the multitudes of fans worldwide who cannot afford the expense of attending soccer's greatest event. This is especially evident when the event is held in countries with large lower income populations, such as South Africa in 2010, or the next host nation: Brazil in 2014.

However, when you analyze the costs involved with the Cup - preparation fees, winnings, compensations for player involvement, etc - it presents an interesting scenario from a pricing perspective. How do you host a global tournament (four years in the making) and simultaneously accommodate the ideal price points of all potential attendees? Thoughts?

From ESPN: (Read the full article here)

FIFA has been accused of putting money first and pricing out ordinary fans after many matches at the World Cup failed to sell out.

Kevin Miles, the Football Supporters' Federation's director of international affairs, told the Sunday Mirror that FIFA must review the costs of tickets and accommodation before the next World Cup in Brazil.

"Overall, it was a rewarding experience for those lucky enough to be able to afford it," Miles said. "But a World Cup being played out in front of so many empty seats was a cardinal sin. The pricing structure excluded large sections of the local population. They have to learn the lessons from South Africa before the next World Cup in Brazil in four years.

"It will require a different mindset as to how they deal with the tickets and accommodation pricing structure that is fixed at too high a level for many grass-roots fans of the game, especially when you take the tournament to a developing nation.

"FIFA must learn the lessons about pricing quickly. They must ensure that we have far fewer empty seats and more enthusiastic Brazilian fans in the stadia. FIFA need to ensure locals and visitors alike are not deterred by high prices."

Miles, like many others, has reservations about the role of MATCH, the agency which exclusively handles World Cup ticketing and corporate hospitality rights. It has been lambasted for pricing out fans and has said it will use Brazil to make up losses from South Africa.

"It's beyond belief that an organisation that has exclusive rights to sell tickets for a World Cup managed to make a loss. But FIFA needs to look at this whole area again to ensure future tournaments are more fan-friendly."

Guest Post: A Progressive Strategy for Trade Customer Pricing

This guest article was previously highlighted in the Professional Pricing Society Newsletter.

Title: A Progressive Strategy for Trade Customer Pricing
Author: Paul Andrew Smith, CPP

Effectively managing trade pricing has become an increasingly difficult conundrum for Consumer Products (CP) companies over the past decade, due to the growth of large international retailers with massive buying power. Faced with sophisticated purchasing departments and vigorous competition, many organisations have lost control of the discounts offered by their sales force in an effort to retain volume. With volatile costs overlaid on tight margins, the net impact of this lack of control on both short and long-term profits can be severe. More recently, recessionary pressures have also encouraged CP companies to re-examine one of the most important and challenging components of their go-to-market strategies – trade pricing.

As such, teams from Global Business Services practices have been working closely with a number of CP companies to transform their approach to pricing and trade terms. The bringing together of functional expertise in finance, supply chain logistics, pricing and customer management with deep industry experience has led to the development of a five-step approach for implementing a new pricing and trade terms framework.

What is a pricing and trade terms framework?
As illustrated in Figure 1, a pricing and trade terms framework is a structured set of prices and trade terms transparently available to all trade customers (i.e. to wholesalers and retailers acting as intermediaries between manufacturers and end customers). The best net price and pocket price achievable differs only with the ability and willingness of the trade customer to consistently exhibit desired behaviour patterns and performance levels.

Below the list price, the framework includes a range of commercial, operational and behavioural terms collectively referred to as “efficiency” terms. These terms reward beneficial behaviour in areas such as logistics, supply chain and payment terms with discounts or rebates, as well as providing for surcharges where appropriate. The framework also details how the manufacturer will support their trade customers through the financing of trade promotions and investment, ensuring that funding is directly aligned with the achievement of defined performance criteria. These terms (labelled “business building” terms in Figure 1) are successfully being used by leading companies to remove the practice of unconditional trade investments and rebates. The efficiency terms recognise the importance of costs-to-serve within the channel, while the business building terms recognise the opportunities for channel partners to add value.

The adoption of the new terms is encouraged through transparency, shared efficiency savings and an unbundling of costs and services that provides clear choices for the trade customer. Transparency and consistent application are key elements of the approach, because they demonstrate to customers that they are receiving equitable and defensible prices.



Why is it worth implementing?
The approach outlined here puts the CP company in control of its own commercial and financial destiny. It allows the manufacturer to reward trade customers for adopting behaviour patterns and operational practices favourable to the manufacturer’s own strategic, financial and operational goals. This planned approach to cooperative working still allows trade partners to leverage their buying power. In return, it ensures that manufacturers can drive operational efficiencies and better manage the apportioning of trade investment, resulting in significant gains for both the wholesaler/retailer and the manufacturer, and a stronger trading relationship.

Large international retailers have become proficient in using their buying power to exploit pricing differentials, negotiation weaknesses and a lack of preparation by manufacturers. A major benefit of a well-planned pricing and trade terms framework is the negotiating strength that it gives the manufacturer; A transparent framework incorporating comprehensive incentive options can help combat aggressive and unconditional demands for better prices from mega retail groups. Experience indicates that the top ten product lines often account for 50% of a CP company’s total revenue. Typically the prices achieved for these top lines may vary by up to 20% across the manufacturer’s customer portfolio. This can have a devastating impact on manufacturers’ profits as mega retailers, fresh from acquiring new businesses, have visibility of these pricing discrepancies and can aggressively cherry-pick the best prices and terms on such products.

Financial and operational benefits
• By structuring payment terms to reward rapid invoice settlement, CP companies have reduced average debtor days from 45 to just 14
• A leading food company achieved a 10% reduction in promotional costs and improved control over merchandising by funding trade promotions retrospectively in line with the volume and timing of trade orders received

Step 1 – Diagnostic assessment, and construction of the framework
The starting point for any engagement is the undertaking of a diagnostic assessment of the industry context, the manufacturer’s go-to-market strategy, and their current commercial and pricing practices. This assessment requires interaction with multiple areas of the organisation including sales, marketing, finance and operations, which is indicative of the breadth of stakeholders who must be aligned to ensure the successful introduction of the framework. The diagnostic ensures agreement on the broader company strategy, which helps prevent debate further down the line. The diagnostic also frequently identifies quick wins which can be implemented ahead of the main project timelines to help the project gain traction, and potentially fund the later stages of the project.

Once the broader context is understood, the terms to be included in the framework can be developed. Precise definition of the terms is essential, including the relevant behavioural eligibility criteria, the level of discount or surcharge to be offered, and whether they will be one-off or cumulative, on-invoice or retrospective. This level of clarity is necessary to ensure that theoretical cost-savings that have been identified are realised in reality, as well as enabling better internal and external communication. This step of the process again involves multi-departmental cooperation; the definition of the efficiency terms requires detailed financial knowledge of the cost-drivers in the supply chain coupled with the account teams’ knowledge of what trade customers will be able to achieve, whilst the marketing department typically lead the development of the business building terms.

Considering the framework from the perspective of the trade customer right from the outset is critical to project success. Trade customers need to be given the opportunity to shape and influence the framework to encourage smooth implementation. This dialogue enables the manufacturer to gain valuable insights into how the new framework can be made to work effectively in customer operations.

Step 2 – Development of the business case
Implementing a new pricing and trade terms framework involves a major operational and financial transformation, and must therefore deliver a good return on investment. Once the proposed framework has been agreed, the likely impact of its implementation must be forecast. Working with historical sales data, and with account managers who have the best view of the likely response of their customers to the changes, a qualitative and quantitative assessment must be made to predict which terms trade customers will access, and what the impact will be on volumes. For an accurate picture, this analysis should be undertaken at the lowest level of detail realistically achievable, for example individual sku’s and individual customers. These results can then be brought together to provide an overall picture of the impact on the business as a whole.

Financial modelling for a leading UK brewer
A financial modelling specialist worked with a leading UK brewer to assess the financial impact of a new pricing and trade terms framework. A bespoke financial model was developed that could simulate the structure of both the existing pricing and commercial terms, and the proposed new framework. Data gathered from account managers for a range of outcome scenarios was analysed against the brewer’s own forecast base-case. The model helped the client understand the likely impact of the new framework on their business as a whole, by sales channel, and for individual customers, as well as highlighting a number of areas for improvement to the framework before live implementation.

Once the likely impact of the introduction of the framework has been identified, this can be coupled with implementation costs such as negotiation training and systems changes, to give a picture of the overall business case. This high-level business case can be driven down to a greater degree of accuracy as more details become clear through the later steps of the project.

Step 3 – Prepare the organisation for the new framework
A new trade pricing framework will require new processes and tools. Crucially, it also demands new behaviours and fresh ways of thinking. A full internal assessment is needed to establish the scope of change across systems, data, people and processes. The output from this will be a series of projects and initiatives that need to be delivered to ensure the organisation is operationally ready for implementation. These changes may be lengthy, and will most likely have to be scheduled alongside ongoing projects within the organisation. Consequently, this preparation phase can last many months, and is dependent on the size of the delta between the current state of the organisation and the required future state.

Step 4 – Selling the new trade pricing framework and supporting transition
Changes in attitudes and behaviour do not stop at the boundaries of the manufacturer’s organisation. A change management programme needs to be implemented through many levels of the trade partner organisation, from local store managers to board executives. Management and staff within trade customers need to understand the objectives of the new pricing and trade terms framework, and how they need to change the way they order, store, distribute, pay for, promote and display products to achieve benefits.

It is essential that the manufacturer clearly explains the business benefits and engages fully with its wholesale / retail customers at an early stage (see Step 1). Investing time to understand the operations, systems and processes within these partners is effort well spent; this knowledge ensures that the trade partner achieves the best pricing and terms possible, to the mutual benefit of the manufacturer.

Step 5 – Tracking effective implementation and measuring the benefits
The implementation of the new framework must be closely tracked to ensure its effectiveness. Monitoring activity and evaluating results is essential in ensuring that variances and discrepancies are quickly identified and corrected, and that both internal and external staff do not revert to previous practices. Putting in place a series of metrics or key performance indicators supported by a regular reporting schedule and a performance dashboard for executives and staff helps embed accountability into day-to-day processes. Contents might include:

• Compliance reports – that indicate where trading partners have modified activity and behaviour in compliance with the new trade pricing framework and highlight areas where they have not
• Quantification of benefits – maps actual performance in terms of order quantities, price discounts, category management and logistics against the original objectives
• Net revenue management – measures like-for-like net revenue contribution from each trade partner, product, category and distribution channel. Uses price waterfall analysis to demonstrate the effectiveness of cooperative trading arrangements and trade promotions

Conclusion
Companies that do nothing to address the current challenges within the CP industry will encounter continuing downward pressure on prices and margins. It is understandable that some manufacturers may be reluctant to embark on a major transformation that can require changes across multiple internal departments, and difficult conversations with trade customers. Forward-thinking companies are taking positive action to proactively manage trade pricing and ensure that discounts are delivered within a framework that provides a more consistent approach, regains control over margins, and enhances relationships with trade partners.

Christopher Provines Joins PPS Board of Advisors

The Professional Pricing Society (PPS) is pleased to announce the addition of Christopher D. Provines to its Board of Advisors. Mr. Provines is the Vice President of Global Strategic Pricing, Reimbursement & Government Affairs for Siemens Healthcare Diagnostics.

With 20 years of experience in healthcare across the medical devices, diagnostics, pharmaceutical and hospital market segments, Mr. Provines is one of the leading practitioners in pricing with over 12 years of experience in pricing strategy, health outcomes & reimbursement. He has taught pricing strategy to over 700 sales & marketing professionals. He brings a unique perspective having also worked in finance, procurement, lean six sigma and sales & marketing roles. Prior to his current role, Chris spent 16 years in Johnson & Johnson in a variety of executive positions of increasing scope and impact.

Make sure to congratulate Chris at the Spring Pricing Conference and Workshops in Chicago - see the full agenda and registration details here!

When Is the Price Right? Frank Luby Talks Pricing with CBS

Congratulations to Frank Luby for his recent interview with CBS! Frank gives insights into pricing strategies and consumer pricing decision making - read the article here: "When Is the Price Right? Jill Schlesinger on How Consumers Make Irrational Choices When Purchasing"

And, don't miss Frank's new workshop at the Spring PPS Conference in Chicago: "Consumer Pricing: Approaches to Manage Today’s Pressures and Uncertainties"

This interactive workshop will help those involved in pricing decisions for consumer products – from brand managers to research and finance analysts to marketing directors – to gain approaches, frameworks, insights, and techniques for pricing products sold at retail.

Get more details about the workshop and conference registration information here!

The E-book Price War Isn’t Over Yet

We have focused a great deal, both in this blog and in recent editions of the PPS Monthly Member Newsletter, on the unprecedented pricing challenges faced by pricers in the EBook industry.

From our January Newsletter:

The transition of traditional media to electronic delivery presents pricers with new challenges concerning customer price sensitivity and product adoption. Publishers in the EBook industry are currently navigating these challenges and attempting to hone in on profitable pricing strategies.

The publishing industry is right to be concerned over $9.99 price tags for bestselling e-books. One price has the potential to disrupt the current publishing model, as well as change how books are marketed and priced in the future. The good news is that pricing techniques can be used to effectively manage this transition.

And our November Newsletter:

"As yet there are no established standards for eBook sales. So can publishers and bookstores in the initial phase of the market develop on a Greenfield site? As much as possible should be done so that eBooks, in addition to bringing joy to the reader, also earn money. Publishers and retailers must not repeat the many pricing mistakes made with traditional books in the past. Precedents for creating revenue opportunities in the online sector are, unfortunately, not always successful. On launch, many newspaper and magazine publishers missed the opportunity to establish prices for their online editions. The resulting consequence is that now consumers widely consider information on the internet today to be free. Further, similarities can be drawn to the digital music platform and music downloads to portable devices."

An article today at Mashable.com gave an interesting update (and outsider's perspective on the ongoing price war, which I thought would be interesting for pricers following this developing case study in new product pricing:

As Apple announced its iPad and iBookstore, there was a shift of momentum in the book publishing industry. Amazon’s strategy for selling e-books on the Kindle was to sell them at a discounted price, such as $9.99, but Apple, somewhat surprisingly, announced higher book prices for titles bought through the iBookstore.

Soon, however, the big publishers such as Macmillan pressured Amazon into letting them sell books through an agency pricing model, which essentially means more money to them, but higher book prices – $12.99 or $14.99 – for the end users.

Read the full story here.

Google Seeks Pricing Expertise

Never underestimate the power of intelligent pricing strategy!

We in the pricing field understand that few things have more of an impact on business success and the bottom line than strategic pricing initiatives and best practices. Because of its importance, pricing as a discipline is increasingly entering the spotlight among big economic players, increasing the opportunities available for pricing professionals. Even Google is seeking pricing expertise!

Google Job Opening:
Director, Pricing Strategy - Mountain View