Capital Goods Equipment

The rise of manufacturers across Korea, China and Malaysia place considerable pressure on traditional US and European manufacturers.  However, companies such as Caterpillar, John Deere and commercial vehicle marketer Scania all achieve price premiums and deliver above average industry profitability and returns for their shareholders.  The question to be asked is 'how'


THE INDUSTRY

The emergence of the grey market in spare parts means that new units can no longer be sold below cost as a form of annuity.  Companies cannot expect their future profits to be generated from their parts sales. The volume mix between new units across the range and the pricing of replacement parts must be calibrated to ensure adequate cash flows and profitable sales in the short and long term

In a market space where cost + % pricing reigns supreme, the concept of end-customer value must be the main driver of pricing strategies.  Detailed channel management and product valuation techniques are critical. Customer segmentation, needs analysis, value in use / value at risk and concepts such as Total Cost of Ownership (TCO) are becoming crucial parts of the pricing equation. Purchase price is also being expressed in the form of lease payment, hire, changeover cost, replacement parts and service contracts

SEGMENTATION

Segmentation of the marketplace is the key to success.  This involves leveraging and targeting your company's product and service offer to the customers that respect and need your value proposition.  Time, company spend and resources are often wasted in go-to-markets where customers are indifferent to your value offer or find it irrelevant in their search for a value based solution

DEVELOPING SOLUTIONS

In developing value based solutions, some of the key questions to consider include:

-  What is the size of end customers' willingness-to-pay for improvements/ product developments? -  How can a win-win situation for both supplier and auto manufacturer be created?
-  Which target costs can be derived from this willingness-to-pay for product developments?
-  How can customer preferences be incorporated into technical products (Quality Function Deployment)?
-  What is the optimal price positioning for my product in view of the objectives being pursued (profit and/or sales volume)?
-  Can a brand premium be obtained for my product from the end customer?
-  How much of a premium can I demand from the manufacturer?
-  Can my product be turned into a brand product in the eyes of the end customer? If so, is it more difficult to replace me as supplier?
-  What volume does the manufacturer gain or lose by installing or not installing my product?
-  Are our strategies affected by exports? If so, what is the optimal currency / international price strategy?
-  Do we need a price corridor? If so, what is the ideal price level and corridor width?
-  Do we have the right rebate system?

WORKING WITH PRICING INSIGHT

Pricing Insight uses an 8 Step Strategic Pricing Management Process.  We engage with your company through the following structured approach:
1)  Initial stakeholder interview
2)  Diagnostic evaluation (see Online Diagnostic)
3)  Identification of key pricing issues
4)  Initial report and workshop proposal
5)  Pricing workshop and/or consulting assignment with key recommendations and actions
6)  Publication of an implementation plan
7)  Set-up of a project team
8)  Complete project plan

Our consulting approach is specifically tailored to your company's needs to optimise price and discount systems. We support the preparation, development and execution of:
-  pricing strategy initiatives;
-  pricing policies & tactics;
-  processes to monitor, report and control price realisation

Your company's pricing can improve within 90 days by focusing on the following key areas:

1) Implementation of Price control systems
The development of price systems that determine regional, national and international prices. The price systems determine the price architecture of the products and account for differences between core, side and complementary products

2) Development of discount management systems
Price structures are developed using a number of pricing mechanics including:
-  List Price less % discount;
-  Long Term Incentive rebates;
-  Special project/contract pricing and;
-  Exclusive customer pricing and specials management

3) Pricing market management
The concept of price leadership differentiates the market players according to size, strength, behaviour and strategy. Considerations toward 'natural' market areas and 'natural' customers help to define the scope of operations. We coach the price leader in the internal set-up and support the external price communication. This allows the market to understand 'how to price' in a rational and fair market place

4) Optimisation of price lists
We optimise the price list of our clients by developing price architectures that strategically position SKU relativities, product groups and customers.  This will make it easy for your company to do business and support 'value for volume programs' with key customers

5) Executing price rises in the market
We support our clients in the preparation, implementation and monitoring of price increases in the market. The process of price increases involves internal participants (sales, marketing, operations and finance functions) as well as the external business partners


Contact us on +61 2 9091 0226 to evaluate your Margin Expansion potential