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Business 2 Business 2 ConsumerPrice and Value Management Through Tiered Channels
Presented by: Tom Monheim Brian Sharp
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Today’s Agenda
• Welcome & Introductions
• Pricing Transformation at Trane
• Managing Price and Value through Tiered Channels
• Case Studies
• Key Take-Aways
• Q & A
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Introductions
• Who is Trane? And who is Kalypso?
The US leader in air conditioning, heating and clean air systems
Premium positioned brands:• Trane• American Standard
Trane is the Quality & Reliability Leader and is #1 in brand awareness, consideration and loyalty
The US leader in air conditioning, heating and clean air systems
Premium positioned brands:• Trane• American Standard
Trane is the Quality & Reliability Leader and is #1 in brand awareness, consideration and loyalty
A management consulting firm focused on helping clients deliver on the promise of innovation. Our unique perspective on growth and innovation informs our Pricing & Value Management Practice, driving increased profitability throughout the product lifecycle.
A management consulting firm focused on helping clients deliver on the promise of innovation. Our unique perspective on growth and innovation informs our Pricing & Value Management Practice, driving increased profitability throughout the product lifecycle.
The Kalypso Difference• Exclusive Focus• Comprehensive Capability• Integrated Approach• Informed Opinions• Sustained Results
The Kalypso Difference• Exclusive Focus• Comprehensive Capability• Integrated Approach• Informed Opinions• Sustained Results
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What’s our business model? B-to-B or B-to-C?
• Leading consumer brands, with a tiered distribution model– Two-stage distribution– Mix of company owned and
independent distributors– No direct sales to homeowner– But homeowner is ‘king’
HVAC OEM DistributorDealer or
ContractorHomeowner
B-to-B-to-B….-to-Consumer
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Today’s Agenda
• Welcome & Introductions
• Pricing Transformation at Trane
• Managing Price and Value through Tiered Channels
• Case Studies
• Key Take-Aways
• Q & A
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Pricing transformation begins…
• New pricing leadership brought in ~3.5 years ago– Challenges: Aging systems, immature processes, lack of
analytics, industry price disruption (13 SEER)
Process overhaul?Process
overhaul?
Replace old pricing system?
Replace old pricing system?
Market price studies?
Market price studies?
13 SEER pricing?
13 SEER pricing?
Competitive insights?
Competitive insights?
New product pricing?
New product pricing?
Gaining or losing price?
Gaining or losing price?
Are we quoting too
often?
Are we quoting too
often?
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Priorities must be established…
• Six primary functional areas of pricing defined
• Priorities developed within this framework
List Price Management
Discounting & Controls
Competitive Intelligence
Value Management
Performance Analysis / Insights
Core Systems
•Calibrate
market prices
(13 SEER)•Quoting
guidelines
and consistency
•Upgrade
analytics•Core processes
not ready for
systems
replacement
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Phase One in Action
Build price waterfallPrioritize buckets; data rarely cooperates; avoid peanut butter spreading
Price / Volume / Mix modelsEssential for measuring ‘pure price’ gains – no Pricer should be without
Data Warehouse, Access, Excel integration (VBA)
Great way to prototype decision support tools and build requirements for new core system
Introduce Value Management concepts
Always good to plant seeds, even if not ready to harvest yet
Key Actions Important Lessons
Field alignment onpricing strategy
Especially important around major product transitions; can’t assume everyone ‘gets it’
Process definition for market price studies
Important for setting and managing expectations, internally and externally
Standardize quoting processes Improve distributors’ understanding of our decision guidelines; more efficient for all
Price band analysisWide ranges of sell prices has big implications on list price and discounting strategies
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Phase Two in Focus
• Core systems replacement, along with process redesign around discounting
• Value Management focus– Value mapping, segmentation, early pricing input for NPDs,
managing value among channel partners
List Price Management
Discounting & Controls
Competitive Intelligence
Value Management
Performance Analysis / Insights
Core Systems
Today’sFocus
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Today’s Agenda
• Welcome & Introductions
• Pricing Transformation at Trane
• Managing Price and Value through Tiered Channels
• Case Studies
• Key Take-Aways
• Q & A
11
ValueDrivers
What’s the value proposition?
Heard at the water cooler:
“We have trouble moving our value proposition down the value chain”
HVAC OEM(TRANE)
DistributorDealer or
ContractorHomeowner
CalculatedFair trade on activities performed by distributor in return for appropriate margin and inventory turnover
CalculatedReliability, ease of servicing, & installation, training/support from distributor, fast availability of products
PerceivedReliability, efficiency, ease of use, comfort, product and air quality, value
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How do we determine value and set price?
Two Schools of Thought
“Value is Relative”- -
Perceived Value
“Value is Quantifiable”- -
Calculated Value
Value mapsPrice vs. performance
Relative market position
Waterfall chartsEconomic Value Analysis
Return on investment
Decision to use oneor both depending
on the uniquesituation
Alignment of Price and Value
Tools
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Perceived Value
Higher Cost
Relative Price
Lower CostInferior Superior
Relative Perceived Value
Worse Value
Fair Value Line
Better ValueEconomy
Average
Premium
The Value Map shows the position of each competitor in terms of the overall cost versus the overall benefit.
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Measuring Perceptions – Example
• Consumers rated the importance of 53 potential HVAC attributes
• Attributes were ranked based on the number of “Extremely” or “Very Important” responses received
T2B Stated HVAC Importance Ratings -- Extremely/ Very Important: BY FACTORS
94 9489 88
83
74 72 70
63
46
3833
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ProductQuality/
Durability
EnergyEfficient
GoodValue/AddsValue
Easy Use/Clean/
Maintain
MakesHomeMoreCom-
fortable
SuperiorProduct
I mprovesAir Quality& Environ-
ment
Brand/Manu-
facturerAttributes
Rec'd. ByExperts/
Fam/Friends
Quickly/Easily
Available
I nno-vative/Unique
Product/Brand
Low CostProduct
Style/Luxury
Tier 1 Tier 3 Tier 4 Tier 5Tier 2
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Measuring Economic Impact – Value Waterfall
A Value Waterfall is used for estimating the economic value-in-use of solutions. This tool is most effective when your business has a clear economic advantage over a specific competitor or when you are weighing purchase decision (e.g. as a consumer)
$ Variance Cost/Profit
vs. CurrentSolution
Current Solution
Break Even
Savings
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Today’s Agenda
• Welcome & Introductions
• Pricing Transformation at Trane
• Managing Price and Value through Tiered Channels
• Case Studies
• Key Take-Aways
• Q & A
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Case #1: New Material for Home Insulation
• 54% of energy in the US is consumed by buildings (residential and commercial) and their construction
• Department of Energy reports that over 40% of the cost of heating and cooling is lost through uncontrolled leakage through the building envelope
• Sharp spikes in energy prices in 2008 increased homeowner awareness related to insulation solutions
• Energy-efficient, or “green” construction is the main trend in the building and construction sector
A new technology is available which reduces energy leakage through the building envelope while maintaining or increasing
the R value of the insulation in the wall and roof space in conventional homes, relative to traditional fiberglass insulation
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ValueDrivers
CalculatedTotal cost of ownership over an expanding time frame (2-5 years)
One Offer. Four Value Propositions.
Scope of enterprise
BasicMaterials
Manufacturer
ResidentialInsulation
Manufacturer
InsulationInstaller
ResidentialHome Builder
Homeowner
CalculatedFair trade on order fulfillment activity performed by distributor in return for appropriate margin and inventory turnover
CalculatedApplication training and technical support augmented by cooperative marketing spend and effectiveness
CalculatedReturn on investment for labor and material inputs during home construction process leading to maximum retail price capture Perceived Value:
functional and emotional benefits of reliability
“My home is ‘green”
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Value proposition to the homeowner is clear…
“install better insulation in your home and save 25-40% on your monthly energy bill…”
Variance Cost/Profit
vs. Fiberglass
Additional Installed cost of
InsulationHVACSizing
Elimination of
Humidifier
Present Value of Future Energy Savings
Current Option: Fiberglass Insulation
Break Even in x months
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Value proposition for residential homebuilder is not clear…
“Build your homes with our insulation….and increase your cost/home?”
Variance Cost/Profit
vs. Fiberglass
Raw Material & Installation
CostsHVAC Sizing
Elimination of
Humidifier Extra
Ventilation
Construction Site
Disruption
Current Option: Fiberglass Insulation
Break Even
Price Markup on
House
Profit
Problem: homebuilders don’t understand how to cover the costs of better insulation
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Case #2: Beyond Hot & Cold: Ideal Home Environment
Clean Air is a Big Deal• 45% households with respiratory
problems• 20M with asthma• Indoor Air 5x worse than Outdoor Air
(EPA study)• Consumers willing to pay for proven
solution
Initial Launch• ‘Bolt-on’ air cleaner • Upgrade kits for
older electronicair cleaners
• $1400 MSRP• Significant marketing
investment
Results• Tremendous positive consumer
experience• From ~10% to >50% market share
first year of launch• Grew entire clean air market by 42%• Drove high end system and
accessory sales• Enhanced dealer profitability for
those who “get it” 80% / 20% rule Channel still focused
on ‘hot & cold’Room Room Air Air
PurifierPurifier
Typical Typical HVAC HVAC
SystemSystem
Electronic Electronic Air CleanerAir Cleaner
Trane Clean Trane Clean Air Air
TechnologyTechnology
Trane/AmStd Solution• Exclusive, proprietary technology• 99.98% efficient at 0.1 microns• Removes the flu virus!• Highest available Clean
Air Delivery Rate (CADR)
CA
DR
CA
DR
Cle
anE
ffec
tstm
Cle
anE
ffec
tstm
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Value Promise
• Extension of successful clean air launch
• Premium price to dealer (vs ‘bolt-on’ solution)
• Significant installation labor savings (time, $)
• Compact design needed for some applications
• Wants clean air
• Willing to pay $1400+ for Trane CleanEffects performance
Value Reality
• Extra SKUs drove extra carrying cost
• Low % of dealers who “get it”
• Didn’t adjust price to homeowner to reflect labor savings
• Cost-plus mentality
• Still wants/needs clean air
• Opted for ‘bolt-on’ solution
Value Drain Across the Tiered ChannelsValue Drain Across the Tiered Channels
HVACOEM
DistributorDealer or
ContractorHomeowner
…Not as rosy for Integrated Clean Air
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Distribution channel creates a value drain…V
alu
eV
alu
e
So
phis
tica
tion
So
phis
tica
tion
HVAC OEMs
Creating a range of solutions which address emerging homeowner needs related to energy management, air quality, and climate control
HOMEOWNERS
Growing awareness related to energy management, air quality, and total cost of ownership as it relates to household budget and operations
ValueDrain
Value Created Needs
CHANNELMoving product through a mature,
2 tier structure across a highly fragmented mix of regional and
privately held businesses
Channel-to-market compromising value capture
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Value analysis drives a new set of actions…
• ‘Pressure test’ value propositions with each tier in the channel
• Look for conflicting benefits and points of departure
• Evaluate go-to-market options – particularly relevant for non-core products
• Segment existing channels and target opportunities
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Today’s Agenda
• Welcome & Introductions
• Pricing Transformation at Trane
• Managing Price and Value through Tiered Channels
• Case Studies
• Key Take-Aways
• Q & A
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Key Take-Aways
• Pricing group must be involved in value management through the entire product lifecycle (concept to end of life)
• Establish value stories and marketing plans for every channel touch point through end-user
• Rigorously apply value science: either perceived or calculated value
Value drives tactics!
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Contact Information
Brian [email protected]
Brian [email protected]
Thank you for attending today’s presentation!