b2b pricing framework elements

B2B pricing framework elements

February 2017

© een Consulting GmbH 2

Ian Tidswell Biography

Founder of een Consulting, focused on helping B2B companies develop best-in-class end-to-end sustainable pricing processes

Professional Experience

• Since 2016, Independent Professional, Switzerland

• 4 years, Global Head of Pricing, Syngenta, Switzerland

• 2 years, Pricing Transformation Lead, Medtronic, Switzerland

• 6 years Partner, Head of Business Consulting, Vendavo Consulting, UK and USA

• 4 years, Director, i2 Technologies, USA

• 4 years, to Engagement Manager, McKinsey & Company, USA

Selected Experiences

• Developed a pricing framework & process for pricing innovations for out-licensing for leading diversified industrial company

• Built the HQ global pricing team for Syngenta. Indirect management of in-country pricing managers

• Lead multiple in-country projects for Syngenta to diagnose pricing opportunities and actions to address price setting, commercial terms management & price execution challenges

• Lead development of a global commercial terms/policy framework and playbook to align CT/P with strategic goals in each country within Syngenta, improved CT/P performance and enabled automation

• Headed the strategic initiative to substantially improve, harmonize and automate Medtronic International’s pricing processes across all major markets. Drove improved pricing & risk exposure

• At Vendavo successfully led discovery, design and deployment of Vendavo price system at multiple customers including chemicals, distributor, semiconductor, tire and mobile phone manufacturers

• Frequent speaker at global pricing conferences

Education

• Ph.D. Physics, Harvard University, Cambridge, Massachusetts, USA• B.Sc. in Physics, Imperial College, London University, UK

At a glance

• Former McKinsey senior consultant with line management experience in MedTech and agri-chemicals business

• Proven B2B Pricing transformation leader

• Practical, hands-on approach with track record in value delivery

• Based in Basel Switzerland

• LinkedIn Profile

• Email: [email protected]

https://www.linkedin.com/in/iantidswellpricing

mailto:[email protected]


Introduction

• A previous slide deck introduced the topic of why improving B2B pricing is worth doing but difficult, and how to get started

• Here we review examples of different types of pricing frameworks that are helpful in organizing and prioritizing pricing activities (the WHAT of pricing)

• Look for these related presentations on:

• Practical steps for how to improve pricing, from the WHAT and HOW, to gaining PERMISSION, making the changes SUSTAINABLE, and SHOWING progress

• Some practical tools that help improve pricing

• How to improve your price guidance to support negotiated sales

http://www.slideshare.net/IanTidswell/why-improving-pricing-is-hard-but-worth-doing-and-how-to-get-started

http://www.slideshare.net/IanTidswell/b2b-price-guidance-with-impact-putting-the-pieces-together

4© een Consulting GmbH

HOW to build a bridge to better pricing

Insights, knowledge, best practices Learn WHAT to do

Pricing and supporting skills HOW to get it done

Pricing team brand/reputation PERMISSION to do it

Improve processes, technology, data Make it SUSTAINABLE

Measure progress SHOW progress to maintain support

The focus of this presentation


Building pricing insights, knowledge, best practices

● Break the problem into pieces – build a framework

- Adds value by simplifying the problem while framing the conversation

- Keep tweaking, enriching, deepening as you learn more

- Keep communicating the core concepts so they become part of the company DNA

● Ruthlessly prioritize. Be transparent about it

● Start with a few projects targeted to help build up the knowledge base


Five dimensions of WHAT to build for a pricing framework that works

Clear priorities that should influence pricing decisions

Company Goals

Harmonized processes & data etc. to leverage scale

Standards

Who makes decisions based on insights, skills

Organization

Data and direction to support decision-makers

Information & Guidance

Process and technology to support and sustain

Consistent execution

A Pricing Process that is:

• Effective

• Efficient

• Sustainable


The framework will include multiple elements that can be scaled and embedded into core processes

• Foundational

• Pricing Framework and Process

• Waterfall

• Segmentation

• Value Maps

• Pricing dashboards

• Process oriented

• Price opportunity prioritization workshop

• New Product Pricing process

• Annual price change process

• Commercial Terms design

• Negotiated price exception management

• Specialized

• Price/Volume trade-off workshop

• Pack-size pricing logic

• Tail-product pricing logic

• FX reaction playbook


Example pricing framework (1)

Pricing StrategySets the pricing

principles and priorities that apply to all

activities.

Price SettingSet the list prices.

Set the pocket price corridor targets

Commercial Terms and PoliciesDesign the discounts, rebates, policies for channel

partners and customer segments

Price ExecutionSet rules for negotiated sales and support.

Manage customer price exceptions.Monitor results

Price AdminAdminister agreed

prices with highaccuracy

Collect data to support guidance and analysis


Bain & Company Example framework (2)


Example Pricing Framework (3, top level)

Strategy + Goals

Pricing Structure

Execute

Monitor + React

● 2-5 simple, easy-to-understand elements

● Clear boundaries between the different elements


Example Pricing Framework: 2nd level elements (3, details)

• Offer Design• Product & Customer Segmentation• Price Setting (List Price)• Price Guidance (Pocket Price Corridor)• Delegation of Authority, Incentives • Capability development• Communication (internal, external)

• Product & Service Design(Value Architecture)

• Waterfall Design• Comm. Terms & Policies Menu• Process & Automation model• Price Governance model

• Transaction Price Process• Exception Management

• Metrics• Pricing Process• Price Outcome

(absolute, relative)• Adjust tactics, goals

Strategy + Goals

Pricing Structure

Execute

Monitor + React


• Start with company goals (short- and long-term)

• Assess impact on core processes:

• Portfolio Pricing

• Commercial Terms

• Price Execution

• Price Administration

• Recognize constraints and trade-offs: be challenging but realistic

• Design-in local flexibility and exceptions

• Seek buy-in from leadership

Pricing goals must be driven by company goals & constraints

Pricing Goals Tactics, Resources, Skills, Organization,

Processes, Tools


High-level pricing decision process flowP

roduct

Mark

eting

Custo

mer

Mark

eting

Sale

s, S

ale

s

Managm

ent

Set List PricesSet Price

Outcome Targets

Set available

discounts &

rebates

Set standard

national /

segment offers

Define opt-in

offers

Assign opt-in &

customized offers

Approve

Exceptions

Approve

Exception

(Sales Manager)

Approve

Exceptions

Price Setting

Commercial

Terms & Policy

Price Execution

(sales)

Define sales

pricing flexibility

Price

Execution

(approvals)


Design a price waterfall to help understand and harmonize the business

• Can you get to one waterfall across the company?

• Not to complex! It’s not the only view of pricing

• Align definitions of key intersection points with finance

• Adapt pricing reporting to align to the harmonized waterfall

• Establish a common control point (pocket price corridor)

• Continually reinforce the concepts and language


Establish a core pricing segmentation scheme, coordinated with sales and marketing segmentations

• Different customer segments may have very different requirements. It’s important to understand the value of the products to different segments

• Typical hierarchy of segments• Usage (e.g. industry) most important

• Geography• Channel• Behavioral most challenging

• Varying prices across segments requires having “fences” between customer segments

• Build by doing: start simple and enhance (note pricing segmentation often differs from marketing and sales segmentations)


A strong price guidance framework for negotiated sales is

based on the pricing power P

rod

uct

& S

erv

ice

V

alu

e D

iffe

ren

tiat

ion

Reduced Cost

DirectAdded Value

Less TangibleAdded Value

• Features that make the product more attractive to end-users

• Raises the “willing to pay” by indirect means, e.g. more reliable, simpler, etc.

• Reduces the cost to supply the end product

Value Differentiation Competitive Intensity

Customer perceived performance

Cu

sto

mer

per

ceiv

ed p

rice

Value advantaged

Value disadvantaged

• Brand position, strength

• Number of competitors

• Market shares

• Channel influence

• Supply/Demand situation

• Supply coverage

Customer

Segmentation

StrategicGoals

PricingPower


A Channel Partner Commercial Terms Library helps focus CT effectiveness and clarity while enabling automation

What are the

BU’s strategic

objectives?

Meet

aggregate

sales targets

Total sales value

incentive

Sales growth rate

incentive

Sales target

achievement

incentive

Meet product

level sales

targets

Drive channel

collaboration

Reduce BU

risk exposure

Reduce BU

costs to serve

Respond to

market

changes

General product

incentives

Product value /

volume incentive

Product sales growth

incentive

Product sales target

incentive

Early commitment

incentive

Joint mktg / tech

support incentive

Information sharing

incentive

“Basic hygiene”

penalties

Exclusivity incentive

Cash on / before

delivery incentive

Early payment

incentive

General customer

incentivesSelf pick up incentive

Large order size

incentive

Reducing returns

incentive

Managed

discretionary

Payment mode

incentive

Loyalty programmes

CT based on sales outcomes Specialised CTCT based on activities

How can CT

support these

objectives?

Cross sales incentive

Outsourced logistics

payments

Channel inventory

reductionShare of

wallet incentive

Grow / defend

topline revenue

Improve

profitability:

products

Strengthen

channel

partnerships

Manage risks

Improve

profitability:

costs

https://www.linkedin.com/in/[email protected]

https://www.linkedin.com/in/iantidswellpricing

mailto:[email protected]