#pricing hero's and leadership

Pricing Hero’s & Leadership

© Sans Prix Pty Ltd, 2002-2014 Slide 2

Question…

Who are the world’s most

admired companies?


The World’s Most Admired Companies? Fortune Magazine, 2009, 2011 & 2014

In 2009…

1. Apple

2. Berkshire Hathaway

3. Toyota Motor

4. Google

5. Johnson & Johnson

6. Proctor & Gamble

7. FedEx

8. Southwest Airlines

9. General Electric

10. Microsoft

In 2014…

1. Apple

2. Amazon.com

3. Google


5. Starbucks

6. Coca-Cola

7. Walt Disney

8. FedEx


10. General Electric

In 2011…

1. Apple

2. Google



5. Proctor & Gamble

6. Coca-Cola

7. Amazon

8. FedEx

9. Microsoft

10. McDonalds


Question…

What are the top 10 brands

in Asia-Pacific?


The Top 10 Brands in Asia? Millward Brown, Brandz 2009…2011…and 2014

In 2009…

1. China Mobile

2. Industrial &

Commercial Bank of

China (ICBC)

3. Toyota

4. China Construction

Bank

5. Bank of China

6. Nintendo

7. NTT DoCoMo

8. Honda

9. Nissan

10. Canon

Brand Value The dollar value of each brand is the sum of all future earnings that the brand is forecast to generate (i.e. ability to generate demand), discounted to present day value

In 2014…

1. Tencent

2. China Mobile

3. International &

Commercial Bank of

China (ICBC)

4. Baidu

5. Toyota

6. Samsung

7. China Construction Bank

8. Commonwealth Bank of

Australia

9. ANZ

10. Agricultural Bank of

China

In 2011…

1. China Mobile

2. Industrial & Commercial

Bank of China (ICBC)

3. China Construction Bank

4. Toyota

5. Baidu

6. China Life Insurance

7. Bank of China

8. Agricultural Bank of

China

9. NTT DoCoMo

10. Tencent/QQ


Question…

Which companies would

be most admired for their

pricing?

…and why is pricing so

important?

© Sans Prix Pty Ltd, 2002-2014

Why is Pricing so Important? Impact on Operating Profit of a 1% improvement in…

2.3%

3.3%

7.8%

11.1%

Fixed Costs Volume Variable Costs Price


…Regardless of the Industry Impact on Operating Profit of a 1% improvement in Price

22.0%

13.5%

12.7%

12.3%

11.4%

11.1%

10.4%

10.1%

9.8%

9.3%

8.6%

6.8%

6.1%

3.0%

1.8%

Automotive

Transportation

Metals & Mining

Chemicals

High Tech &Electronics

Aurospace & Defense

Paper

Insurance

Healthcare

Oil & Gas

Communications

Consumer Products

Pharmaceuticals

Banking

Investment

Impact of a 1% Price Improvement on Operating Profit

For The Kroger Retail Food Chain… ► If prices were increased 1%...?

For Coca Cola… ► If prices were reduced 1%...?

For Continental Airlines ► 44mill passengers x Average fare

of $193 = Loss


You offer a service with a 30% margin, and you are planning on reducing

prices by 5%. What sort of volume uplift is required to maintain existing

revenue?

You have a service with a 20% margin, and you are planning on increasing

prices by 8%. What sort of volume are you putting at risk?

20% Volume Uplift

10% Volume Uplift

5% Volume Uplift

8.2% of volumes

28.6% of volumes

38.7% of volumes

Quiz Time Decreasing & Increasing Prices


Pricing Hero #1 Warren Buffet, Berkshire Hathaway


Pricing Hero #1 Warren Buffet, Berkshire Hathaway

“…if you have to have a prayer session

before raising…prices…then you’ve got a

terrible business”

“Price is what you pay…value is what you

get”

“The single most important decision in

evaluating a business is pricing power”


Lets turn back the clocks to…

1953


Pricing Hero #2 Lee Iacocca, Ford (at the time)


Fast Forward to…

1964


Pricing Hero #3 Donald Washkewicz, Parker Hannifin


Parker Hannifin Product Segmentation, and Key Results

Net Income ($mill)

$130

$673

2002 2006Return on Invested Capital

7%

21%

2002 2006

Share Price v S&P 500

2001 to Present

88%

25%

S&P500 Parker

Is the Price Right? Over 800,000 Products

Divided into five new product categories based on factors like competition,

specificity and value added

→ → → → Products become increasingly specialised → → → →

Category

A Core Product

B Partially

differentiated

product

C Partially

differentiated

product

D Differentiate

d Product of

system

E Specials or

classics

Product

Example

High volume

versions of

basic valves,

fittings, hoses

& motors

Pumps Tubing

systems

Micrometering

device

Power unit

Pricing

Rationale

Highly

competitive

markets;

prices aligned

with market

Differentiation

that adds

value for

customer

Niche products

with no exact

competitive

matches

Highly

engineered

solutions to

improve

customer

profitability &

productivity

Custom

designed for

customer

applications; a

legacy

product, or

only available

at Parker

Range of

Price

Increase

3% - +5% 0% - 5% 0% - 9% 0% - 25% More than

25%


Parker Hannifin Where are they today?

$0

$20

$40

$60

$80

$100

$120

1/3/00 1/3/02 1/3/04 1/3/06 1/3/08 1/3/10 1/3/12

Share Price

$3,233,881,000

$3,106,832,000

$3,393,563,000

$3,411,666,000

Sep-11 Dec-11 Mar-12 Jun-12

Revenue

$819,439,000

$725,510,000

$803,248,000

$839,408,000

Sep-11 Dec-11 Mar-12 Jun-12

Gross Profit



Pricing Leader #4 Reed Hastings, Netflix

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=O9ztFxPQMNz0xM&tbnid=Z7lZu6jO4J93UM:&ved=0CAUQjRw&url=http://www.celebritynetworth.com/richest-businessmen/ceos/reed-hastings-net-worth/&ei=lQSEU8TyG8jakAXX-oH4Aw&bvm=bv.67720277,d.dGI&psig=AFQjCNG6HqqgzHO9KkHQh5Lj5ApGkV9DTQ&ust=1401244717418134


Pricing Leader #5 Patti Wolf, Glass WhiteBoards


• Toughened

• Starfire, and

• Magnetic

• And in many sizes

Glass Whiteboards Come in Three Models


$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

450 x 450 900 x 600 1200 x 900 1500 x 900 1800 x 900 1500 x 1200 2000 x 1000 1800 x 1200 2400 x 1200

Toughened Current Starfire Current Magnetic Current

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

450 x 450 900 x 600 1200 x 900 1500 x 900 1800 x 900 1500 x 1200 2000 x 1000 1800 x 1200 2400 x 1200

Toughened New Starfire New Magnetic New

Re-priced on PricingProphets.com

Product Ladder Optimisation

Est. Revenue Uplift +11%

Optimisation of the Product Ladder


A Quick Diversion… Ron Johnson, formerly of JC Penney

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=MnEHMZG5kl83pM&tbnid=BexYFAeaviPlQM:&ved=0CAUQjRw&url=http://www.internetretailer.com/2013/04/08/jc-penney-has-new-ceo&ei=TgSEU977HYqqkgWWxIHgBQ&bvm=bv.67720277,d.dGI&psig=AFQjCNGgq67j1iUquLNaQh_HveA25U9S7w&ust=1401244637000423


Lessons From and For Pricing Leaders

►Champion of the Cause

►Be Prepared, Be Bold and Back Yourself

► The Customer is the Single Point of Failure

► Look at Other Industries

►Pricing is Holistic

► There’s No Such Thing as a Pricing Laboratory

►When you’re Adding Value, Add to the Price

►Cost-Plus Pricing is a flawed strategy


And Finally….

Ten Ways You Can Start

Your Pricing Leadership

Journey


Number 10

Develop a Pricing Strategy…


Number 10

...that Includes a Discounting Policy


Number 9

Don’t Condition the Market


Number 8

Form a Pricing Committee


Number 7

Don’t Talk About Costs…

…and remove invoice shock


Number 6

Its Not About You


Number 5

All Value Is Subjective


Number 4

All Value Is Contextual


Number 3

Segment the Market


Price Buyers

Relation-ship

Buyers

Value Buyers

Poker Players

Number 2

Understand Your Buyer


Number 1

Remember Goldilocks…?


Have We Got Time for

Any Questions…?


Jon Manning Founder & Director, Sans-Prix.com

Founder & Managing Director, PricingProphets.com

PO Box 533, Ascot Vale, Vic 3032 Australia

youtube.com/user/PricingProphets

linkedin.com/company/Pricing-Prophets

[email protected]

+61 (0) 405 629-141

@SansPrix | @PricingProphets facebook.com/PricingProphets

http://www.SansPrix.BlogSpot.com

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