general overview - · pdf file•parker hannifin, ge, rockwell, exxonmobil, tyco...

© 2016 Strategic Pricing Associates, Inc. 1

General Overview


About Strategic Pricing Associates

Driving sustainable improvements in Enterprise Value competitive

success through Profit Maximization

• Founded in 1993

• World-Class Analytics & Training

• Integration of Pricing Analytics to SAP, Oracle, Infor and Epicor

(Eclipse, Prophet21, Prelude)


About SPA™

Over 200 Manufacturing Businesses:

• Parker Hannifin, GE, Rockwell, ExxonMobil, Tyco Electronics,

Dover, St. Gobain, Altramotion, Mitsubishi-Caterpillar

Over 400 Distribution Businesses:

• Grainger, Cardinal Healthcare, ThermoFisher Scientific, Industrial

Distribution Group, OneSource, Win Wholesale, Johnstone Supply

Case Studies and Video Testimonials

at StrategicPricing.com

And at spasigma.com


…boosted operating income by $200 million

…net income soar to $673 million last year from $130 million

…return on invested capital has risen from 7% to 21%


Everything You Wanted to Know

About the Battle for Margin

• It’s about Setting Price and Getting Price

• Setting means determining the optimal price and cost and deploying it to the sales rep

• Getting means arming the sales team with the negotiation skills to achieve the Set price

• To master the opportunity, you have to do both

• You need to get into the heads and the hands of your sales team

• Train them

• Give them easy-to-use tools that reinforce the training


SPA Portfolio Approach

Fully leverage SPA’s portfolio to deliver maximum profits

SPA Analytical, Workflow & Reporting Tools

Negotiation & Sales Training & Retention

Strategic Costing

Strategic Pricing

Negotiation

Selling Skills

Set

Tools

Get

Tools

SPS

SCS

Cloud

Tools


Maximize

Profitability

Contract Tools &

Vendor Tools

Negotiation & Sales

Training & LMS

Strategic Costing

Reporting:

Profit Finder

Visualize

Identify

Monitor

Measure

Price Banding

Contract Pruning

Purchasing/Rebate Optimization

Decision Making Tool to improve future

contract structure and margin

Grow and retain negotiation and

sales skills

Outside & Inside Sales

Product Managers, Engineers

Buyers

30 day path to increasing margins by 200 bps

Data Aggregation

Industry Benchmarking and

Market Insights

Strategic Pricing Solution

180 bps in 30 Days


The Pricing Opportunity

• Price to Value, Not Cost

• Get the Optimal Price on Each Product to Each Customer

- Balancing Profitability vs. Competitiveness

- Focus Discounting Where It Pays Off

- Get Premiums on Less-Sensitive Products and Customers


The Pricing Reality

Sales Force Issues

• Heavy “Peanut Butter” Pricing Orientation

• Little or No Training, Analytics, or Tools to Support Sales &

Negotiation Decision-Making

• Little or No Training, Analytics, or Tools to Support Purchasing

• Sales Reps who Discount rather than Sell

• Weakly Defined Process and Metrics

• Mis-Aligned Incentives

Bottom Line:

Lots of Lost Price and Profit - Generally 2 - 4% of Sales


How Profit Variables Impact a

Distributor’s Operating ProfitAssumes 4% ROS, 30% Ave GM, 26% Ave SG&A

(1) Increase Selling

Price by 2%

(2) Increase Volume

by 2%

(3) Reduce Operating

Expenses by 2%

(4) Reduce Cost of

Goods Sold by 2%

15%

V 2%

2% Increase in Volume = 15% Increase in Net Profit

50%

2% Increase in Selling Price = 50% Increase in Net Profit

SP 2%

13%

2% OE

2% Decrease in Operating Cost = 13% Increase in Net Profit

2% COGS

2% Decrease in COGS = 35% Increase in Net Profit

35%




%

Profit

Advanced Pricing

Analytics

Strategic Pricing

And Negotiation

Training

Strategic

Costing and/or

Negotiation

Training

SPA reporting and field tools

1.5-2.0% 1.5-2.0% 5%+

Negotiation Training & Retention


Potential Earnings Impact

Impact - Additional GM%

Revenue 1% 2% 3% 4% 5%

$5,000,000 $50,000 $100,000 $150,000 $200,000 $250,000

$10,000,000 $100,000 $200,000 $300,000 $400,000 $500,000

$25,000,000 $250,000 $500,000 $750,000 $1,000,000 $1,250,000

$50,000,000 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000

$100,000,000 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $8,000,000

$250,000,000 $2,500,000 $5,000,000 $7,500,000 $10,000,000 $12,500,000

$500,000,000 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000

$1,000,000,000 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000

$5,000,000,000 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000


The potential enterprise value (at 7x multiple) impact to your business

Impact - Additional GM%

Revenue 1% 2% 3% 4% 5%

$5,000,000 $350,000 $700,000 $1,050,000 $1,400,000 $1,750,000

$10,000,000 $700,000 $1,400,000 $2,100,000 $2,800,000 $3,500,000

$25,000,000 $1.750,000 $3,500,000 $5,250,000 $7,000,000 $8,750,000

$50,000,000 $3,500,000 $7,000,000 $10,500,000 $14,000,000 $17,500,000

$100,000,000 $7,000,000 $14,000,000 $21,000,000 $28,000,000 $35,000,000

$250,000,000 $17,500,000 $35,000,000 $52,500,000 $70,000,000 $87,500,000

$500,000,000 $35,000,000 $70,000,000 $105,000,000 $140,000,000 $175,000,000

$1,000,000,000 $70,000,000 $140,000,000 $210,000,000 $280,000,000 $350,000,000

$5,000,000,000 $350,000,000 $700,000,000 $1,050,000,000 $1,400,000,000 $1,750,000,000

IMPACT:


The Sales & Purchasing Challenge

• Sellers have little or no training on value-selling or negotiation

skills

• Vendors and Insurance side are heavily trained and focused

• Vendor pricing is varied and creates purchasing opportunities

• Buyers have little or no training or tools to support efficient

buying

Bottom Line:

If you don’t continuously train, manage, and equip your vendor-

and customer-facing staff, you lose margin dollars.


• Simple: Cut costs every year

•Buy from Best Supplier at Worst Supplier’s

Prices

• Sell More at Any Price above Pain Point

• Carefully prepared RFP to “commoditize”

sellers

• Buyer’s RFP drives discussion focused on

price

•Little preparation

• Recurring training on Negotiation

Effectiveness

•Negotiation is the full-time responsibility of

the purchasing agent

• Lack of Training and Tools

•Price negotiation is uninformed &

uncomfortable part of reps’ responsibility

• Systems to collect supplier bids and

purchase history to leverage in negotiation

• Limited knowledge of market prices or cost-

to-serve

• Procurement is measured on reducing unit

costs

• Sell more volume above Pain Point

Procurement is a strategic initiative to cut

costs & achieve advantage

Pricing is a reactive, tactical activity to

close deals at prices above Pain Point

Procurement Sales

Strategy

Process

People

Information

Metrics

The Negotiation Inbalance:

A Buyer’s Market


The Analytical Challenge

• Significant Marketplace Complexity

1000s of Products & 1000s of Customers

• Lots of People Making Pricing Decisions

• Lots of Guesswork

• Millions of Pricing Possibilities

Example: 5,000 Customers x 10,000 SKUs = 50 million potential

price permutations

Bottom Line: If you can’t define what value pricing looks like in a

complex environment, you won’t have principled pricing.


The Pricing Outcome

Pricing Chaos:

• Guessing Game

• Underpriced Customers

• Underpriced Products

• Sales Force Confusion

• Errors/Frustration

• Sloppy Processes

• Customers Who Beg

• Lost Price and Profit


SPA Analytics

Data-Driven Pricing Standards

Recommended Mark-Ups/Discounts/Price Bands

Product Sensitivity Ratings

Metrics & Compensation Statistics

Management’s Market

Assessment & Reviews

Invoice Data

Customer & Product

Segmentation


Company 1 Company 2 Company 3



9 Companies’ Pricing Patterns


SPA’s Multivariate Sensitivity Profiling

SPA analyzes client invoice data, looking at customer product baskets and customer order patterns by product

SPA analyzes key predictors of price sensitivity

• Order frequencies, volumes, repeatability

• Customer’s relative spend by product

• Distribution of many properties by customer and across groups of customers

Result: Recommended price premium map to SKU’s and vendors by individual customer or customer group


The SPA Pricing Cube™

Product Price Sensitivity Profiling

Core A

Core B

Non -

Core C

Non -

Core D

Highest Sensitivity

High Sensitivity

Low

Sensitivity

Lowest

Sensitivity

Price

adjustments

limited to

bottom 50%

of customer

sales



• Segmentation of Customers

• Profiling of Price Sensitivity

• Analysis of Pricing Performance

• Definition of Pricing Standards

• Pricing Metrics to Support Pricing

Processes and Compensation

Bottom Line: You make more money when you price smarter.

A Pricing Architecture that combines SPA’s Invoice

analysis with your knowledge of markets


World-Class Analytics:

The Ticket To Play

Without analytics and tools, it’s impossible to get sales force traction:

• You can’t define what good means across thousands of skus and

thousands of customers

• You can’t measure performance against a standard

• You can’t identify, investigate or remediate the defects

• You can’t explicitly align incentives

• Your process lacks executional control levers

Bottom Line: If you don’t define good pricing, you can’t hold

people accountable.


Strategic List Pricing and Strategic

Costing


The Strategic List Pricing

Opportunity

List less Discount factor drives sales rep pricing decision-making

The price differential necessary to incent switching from OE to aftermarket varies

significantly based on product tier, unit price, and transaction size

GM may have recently adopted a Dynamic Pricing Strategy that may differentiate

OE list price regionally or on other less visible attributes

The true cost-to-serve of thousands of products varies dramatically

High-volume, top-vendor, fast-turning products are efficient to serve

Low-volume, bottom-vendor, slow-turning products are costly to serve

Sales reps’ peanut-butter pricing approach typically applies fixed customer-level

discounts to products that differ dramatically in price sensitivity and cost-to-

serve


The Strategic List Pricing

Opportunity

Significant Marketplace Complexity

1000s of Products

A more strategic approach to costing your products can selectively lead sales

reps to higher profits without a change in behavior, generally 180 basis points

on affected revenue

$18,000 extra profit per $1 million of revenue

Approximately 7x ROI

Sold as a monthly subscription service delivered via SPA cloud portal


The Strategic List Pricing Solution

SPA has worked to develop a Strategic Pricing Solution (SPS) to implement Strategic List

Pricing for GM as well as non-GM pricing opportunities, even when list prices are not

published (via Parts Link, etc)

A data extract tool provides push-button export of required sales data (usually 12 months’

worth)

The service identifies appropriate list pricing based on the visibility/competitiveness of

the OE/product family, price sensitivity of the part number, and transaction/unit price

value

The service monitors GM’s fluctuating List Prices and infers List Prices in the event that

they are concealed, using industry price to cost ratios

The module tabulates gains applied to quantify impact

Bottom Line: A simple, elegant strategy to drive 180 extra basis points or more: $18,000

per $1.0 million of sales.


SPA’s Multivariate Sensitivity Profiling

SPA analyzes client invoice data, looking at customer product baskets and customer order patterns by product

SPA analyzes key predictors of price sensitivity• Order frequencies, volumes, repeatability

• Customer’s relative spend by product

• Unit Price Levels

• Distribution of many properties by customer and across groups of customers

Recommended costs and list prices per SKUResult:



Product Price Sensitivity Profiling

Core A

Core B

Non -

Core C

Non -

Core D

Highest Sensitivity

High Sensitivity

Low

Sensitivity

Lowest

Sensitivity

Price

adjustments

limited to

bottom 50%

of customer

sales


SPS List Price Database

(Sensitivity Ratings)


Strategic List Price Premiums

Premiums/discounts vs. the currently active (client-selected) OE list price field; differentiated by vendor visibility, product sensitivity, and product unit price

The OE List Price is the Starting Point

The target discount off OE is variable based on the Visibility of the Product Family and Sensitivity of the SKU

The first layer increases the cost field by a “puff” factor. The increase is based on the OE/Product Family visibility and part number core status.

The second layer allows scales the premium up or down based on unit price of the item:• Higher premiums for low unit-cost items

• Lower premiums for high unit-cost items


Vendor/Family Visibility

Ratings

SPS provides an editable visibility indicator for each OE/product family

• Intended to describe how visible or competitive an OE’s prices are in the market place for each product family they provide• Quantitative and/or subjective judgment of the price sensitivity of the

vendor/family in the market place

Apply a Visibility Rating: Very High, High, Medium, Low, Very Low


OE/Product Family Visibility

Ratings

Provide a Competitiveness/Visibility indicator for each vendor/product family

• Very High

• High

• Medium

• Low

• Very Low

Very

High

20%

High

20%

Medium

20%

Low

20%

Very Low

20%


Strategic List Price Premiums Matrix

(internal list price, percent premium above usual

list price; scaled further by unit list price)

SKU Core

Status

Product

Family

Visibility

Core A Core B Non-Core C Non-Core D

Very High 0 0 0 0

High 0 0 0 0

Medium 0 2 4 6

Low 3 4 6 8

Very Low 4 5 7 9


The Strategic List Pricing Math

Exclude Top 2 Tiers of Vendors (40%)

• Just apply to Medium, Low and Very Low Visibility

Bottom 60% of each Revenue in Play, excluding the

OE/product families that are most sensitive

Strategically price 60% of revenue, typical impact is 300 bps

Typical Impact is 180 bps = 1.8 margin points


Strategic Costing Solution

Implement a new, Strategic Costing Solution to improve purchase

costs from vendors

SPA benchmarking data allow comparison cost shopping by part

number per sku

• Depends on sufficient subscriber data

Bottom Line: you can drive better margins from purchasing at

better prices: typically 200 basis points on purchases, or

$20,000 per $1 million of purchases

7x ROI

Sold as a monthly subscription service delivered via SPA cloud

portal


Pricing Impact

Cost of SPA

Your Profit

Margin Points

Earned

% of Revenue Priced Strategically


Negotiation Training and Sales Academy


Negotiation Training Program to…

• Train (and retain) skills for marketing and sales staff; purchasing staff

• Communicate Value and Negotiate Win-Win Deals

• Counteract Haggling and Special Terms giveaways

• Grow orders and deal size

• Conducted via in-person training sessions as well as online versions for

inside sales and for retention for all participants

- Testing, Games, Quizzes, Certification

- “Gamification” to monitor and incent acquisition and retention of skills


SPASigma for Outside Sales, Product

Managers, Engineers, Buyers

1-Day Seminars held in 31 Cities across North America

• SPA-developed curriculum led by former long-term expert negotiation

instructors

• Instruction, Case Studies/Role Playing, Tools, Coaching

Learning Management System platform to ensure long-term retention

• Monthly 1-Hour Webinar/Video with Exercises, Games, and Testing

• Best in Class platform accessible on any device

• Tracking of individual performance

• Certification: White Belt, Yellow, Green, Black, Master Black Belt

SPASigma Master Black belt

SPASigma Negotiation

August 2015


SPASigma for Sales,

Product Managers, Engineers, Buyers

• The Principles of Effective Negotiation

• How to Prepare for a Negotiation

• Reading the Other Party’s Economic and Behavioral Model

• Tactics to Improve Outcomes

• How to Win in the Toughest Competitive Situations

• How to Evaluate Bargaining Power

• How to Sell on Value not Price

• How to Grow the Deal

• Time-Proven Techniques to Create Win-Win

• Setting and Achieving Targets: You don’t hit a target you never set

• Managing Deadlocks


SPASigma Program for Retention

1-Hour Weekly Virtual Training Session

• Customer Profiling: Value Drivers and Pricing

Leverage

• 12 Customer Tactics to Beat You Up on Price

and How to Defeat Them

• How to Evaluate and Leverage the Buying

Situation

• Growing the Order to Diffuse Haggling

Sales Academy platform to ensure retention

• Monthly 1-Hour Webinar/Video with

Exercises, Games, and Testing

• Best in Class platform accessible on any device

• Tracking of individual performance

• Certification Levels & Recognition


SPASigma LMS


Negotiation Training and LMS

OUTSIDE and INSIDE Sales:

https://vimeo.com/spasigma

https://vimeo.com/spasigma


SPASigma Content Architecture

Negotiatio

n

Selling

Skills

V1 V2

3PT1 3PT2

Client

M1

Client

M2

Client’s

Proprietary

Training Info

Third Party/Compliance

Training Courses

And/or Presentations

Vendor

Product & Application

Training Programs

(Top 10 per Vertical)

SPASigma

Proprietary

Content

V3 V4

• Free Upload

• Monthly Bundled Access

• Wizard for Testing

• Free Upload

• ASA/AD/Imark Training Content

• Wizard for Testing

• ASA/AD/Imark Vendor/Application Content

• SPA, SPASigma Training

• Sandler Sales Training

• Retention and Certification/Gamification

Profitability

Training


Conclusion

Next Steps


SPA’s Comprehensive Solution

Incentives

Training

Process

Analytics

• SPA provides a long-term,

comprehensive, end-to-end solution

• World-Class Analytics; Process & Sales

Force Training; Incentives Guidance

• Proven, Broad and Deep Industry

Expertise: Over 600 Clients

• Manufacturer-Side and Distribution-

Side Expertise

• ERP Integration

• Superior Time To Results: Less Than

90 Days

• Most Efficient Staff Requirements: Two

to Four Weeks of Staff Time


SPA has developed a Strategic Pricing Program of training and related data services

• Training in the principles, strategy, and process of pricing

• Export data to SPA for analysis

• After review/modification, import pricing cube into your ERP

Client submits 12 months of invoice data to SPA for analysis to develop recommendations at the customer/product/service level

Client forms a pricing team to lead and maintain the process:

• Owner/General Manager, IT, Head of Sales, Pricing Manager or Controller

• Process typically takes two to four weeks of staff time over a 90-day period

The SPA Program


Thoughts About Pricing

• Pricing is a “contact sport”; but most of the contact is internal

• Train your customer-facing personnel on negotiation effectiveness

• Give your people the tools and skills to succeed

• Use data to make decisions; you need analytics and tools to drive

Strategic Pricing

• Define and measure your pricing processes

• You don’t have to be perfect to win


Summary

Big Opportunity: 2-4 Margin Points = 50%+ EBITDA Increase

Cost-Plus and Millions of Customer-Product Combinations Create Chaos

Training, Work Tools, Incentives, and Metrics drive Behavior

Use Big Data to translate Strategy into Actionable Plans

To be sustainable, learning must be continuous (therefore enjoyable) and tools must be part of the workflow

Pricing is a specialized discipline where expertise has huge payoff in impact and speed of execution




%

Profit

Advanced Pricing

Analytics

Strategic Pricing

And Negotiation

Training

Strategic

Costing and/or

Negotiation

Training

SPA reporting and field tools

1.5-2.0% 1.5-2.0% 5%+

Negotiation Training & Retention


Negotiation Seminar

Measure

Outcome

Strategic Pricing Cube

Strategic

Costing

Start Here

Getting Started - The SPA Journey

SPASigma LMS


Next Steps

Step 1: Sign up for SPASigma Professional Negotiation Seminar

Two-for-One Credits for Q2 Seminars

Step 2: Onboard SPA Strategic Pricing Cube

Step 3: Onboard SPASigma Training & LMS to Arm Your Team

Step 4: Deploy Purchasing Optimization Tools

More info:

• [email protected]

• www.StrategicPricing.com

• www.SPASigma.com


THANK YOU

Strategic Pricing Associates

general overview - · pdf file•parker hannifin, ge, rockwell, exxonmobil, tyco...

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