Pricing Strategies Template & Framework| By ex-McKinsey

Pricing Strategies
Training & Templates
By Ex-Deloitte &
McKinsey
Consultants

22
Aurelien Domont
Slidebooks Consulting
Managing Director
Ex-Deloitte
“ Increase your knowledge and skills by using a
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Objectives of this document
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33
Agenda
Step 1: Increase your Pricing background knowledge
• Why Pricing is critical?
• Key figures to know
• Key issues caused by ineffective Pricing management
• Root causes of pricing issues
• Estimated benefits of a Pricing management project
• Key consulting firms providing Pricing Management services
• Key questions Senior executives need to answer
Step 2: Define the pricing maturity level of your business
• Create a pricing maturity model
• Identify your current pricing maturity level
• Define your target pricing maturity level
• Design a roadmap to go from your current state to your target state
Step 3: Define your Pricing Strategy
• Set up your Pricing Goal
• Define key methods to reach your Goal and set up your list price
• Apply discount to your list price
Step 4: Make sure you avoid price war
Additional reusable Powerpoint templates

44
Agenda
• Key figures

55
Price is the fundamental interaction point between supply and
demand
PriceSupply Demand

66
Price impacts both Demand and Supply
Quantity
Price

7
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88
Key figures
3%
Companies effectively
managing, communicating,
and enforcing prices today
300%
Average ROI of a 3 to 6 months
pricing management project carried
out by a tier-one consulting firm
Source: Kiewell and Roegner

99
Ineffective pricing management will cause many issues
 Increased service costs
 Increased price
administration costs
 Increased receivables
write-offs
 Wide price bands
 Inaccurate quotations
from field sales
 Slow response to RFPs
 Declining margins
 Little correlation between
volume and price
 Product profitability lack of
visibility
 Lost market share
 Excess / obsolete inventory
 Low volume for new
products

1010
There are key common root causes of pricing issues
Lack of new
technology
Inconsistent or
inaccurate
data
No clear
owner of price
& margin
Price
complexity
Lack of Senior
Project
sponsor
Pricing issues

1111
A listing price can be break down in multiple components
List
Price
Rebates
Damaged
Product
Returns
Segment
Discount
Customer
Specific
Inventory
Unbilled
Freight
Payment
Terms
Order Size
Discount
Co-Op
Advertising
Trade
Promotions
Fixtures
& Racks
Pocket
Price
Each component represents
an opportunity to improve
margin

1212
Reusable Powerpoint template
List
Price
Pocket
Price

1313
Estimated benefits of a Pricing management project
Example
# Opportunity Total Book of
Business
Opportunity ($M)
2018 Margin Opportunity
($M)
Ease of
Implementation
Low High
1 Adjust price based on demand $8 - 10 0.5 1
2
Create a new system providing more
comprehensive pricing data
$1 0.2 0.4
3 Reduce the amount of uncharged freight $1 – 2 0.1 0.2
4 Adjust price based on customer segment $1 - 2 0.1 0.3
5
Tighten price discipline on non-strategic
customer
$8 0.5 1
Total $18 - 22 1.4 2
Easiest HardestEase of implementation:
Illustration

14
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1515
Estimated benefits of a Pricing management project
Template
# Opportunity Total Book of
Business
Opportunity ($M)
2018 Margin Opportunity
($M)
Ease of
Implementation
Low High
1 Insert your own text
Total

1616
A dozen Consulting Firms provide Pricing Management
services
Advise Implement Operate
McKinsey
Bain
BCG
Infosys
Accenture
IBM
Capgemini
BearingPoint
Deloitte Consulting / Monitor
PWC
Ernst & Young
Simon Kucher & Partners
Software vendor, i.e. SAP

1717
In his latest white paper, BCG identified 3 key questions
Senior executives need to answer
In best-practice companies, senior management chairs a pricing
committee accountable for defining and managing the pricing policy,
with a focus on the tradeoff between margin and volume. It includes all
key functions, including sales, marketing, finance, sourcing, and
operations, and meets at least monthly.
Do you have a pricing
governance body at the top
of each division of the
company?
Best-practice companies effectively consolidate the information, derive
the implications, and “operationalize” them into price changes.
Does a pricing team
prepare the data needed
for decision making by the
committee?
Best-practice companies capitalize on and codify customer knowledge so
they can price more astutely. An understanding of what customers value
most, how their economics work, and how they will respond to price
changes can be developed through advanced customer-exploration
techniques.
Do you know more than
your competitors about
your customers’ response
to pricing?

1818
Agenda
• Key figures

1919
Create a simple Pricing maturity model
Basic
Standard
Advanced
Leading
1Level 2 3 4
Percentage of
Companies
20% 70% 10% <1%
Description
• Cost-plus or margin-
based pricing
• No pricing market
analysis
• No pricing competitive
analysis
• Barely any pricing data
• No resources
exclusively allocated to
pricing management
• No forward-thinking
pricing strategy
• Prices respond to key
market factors or
inventory-driven lifecycle
• Limited pricing market
analysis
• Limited pricing
competitive analysis
• Limited pricing data
• A small dedicated team
allocated to pricing
management
• Limited forward-thinking
pricing strategy
• Context-driven and
managed life-cycle
pricing
• Robust pricing market
analysis
• Robust pricing
• Comprehensive pricing
data
• A dedicated team
management
• Good forward-thinking
pricing strategy
• Pricing based on
predicted demand
• Heavy pricing analytics
coupled with clear
execution accountability
• Sophisticated pricing
strategy involving
multiple internal and
external factors with a
desire to test and learn
• Anticipation of
competitors reaction
• Excellent forward-
thinking pricing strategy
Example of a Pricing maturity model

20
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2121
Identify your current pricing maturity level
Basic
Standard
Advanced
Leading
1Level 2 3 4
Percentage of
Companies
20% 70% 10% <1%
Description
based pricing
analysis
analysis
• No resources
pricing management
pricing strategy
market factors or
analysis
• Limited pricing
management
pricing strategy
managed life-cycle
pricing
analysis
• Robust pricing
data
management
pricing strategy
predicted demand
coupled with clear
strategy involving
• Anticipation of
Current pricing maturity level

2222
Identify your target pricing maturity level
Basic
Standard
Advanced
Leading
1Level 2 3 4
Percentage of
Companies
20% 70% 10% <1%
Description
based pricing
analysis
analysis
• No resources
pricing management
pricing strategy
market factors or
analysis
• Limited pricing
management
pricing strategy
managed life-cycle
pricing
analysis
• Robust pricing
data
management
pricing strategy
predicted demand
coupled with clear
strategy involving
• Anticipation of
Target pricing maturity level

2323
Basic
Standard
Advanced
Leading
1Level 2 3 4
Percentage of
Companies
X% x% x% x%
Description
• Insert your own text
Insert your own text

2424
Basic
Standard
Advanced
Leading
1Level 2 3 4
Percentage of
Companies
X% x% x% x%
Description
Current pricing maturity level

25
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2626
Basic
Standard
Advanced
Leading
1Level 2 3 4
Percentage of
Companies
X% x% x% x%
Description
Target pricing maturity level

2727
Identify a roadmap to go from your current state to you target
state
Create a small dedicated team
management
Identify the key internal pricing
issues and root causes
Set an IT system
providing heavy pricing
analytics
Create a robust pricing market
analysis
Define the pricing strategy for
the year ahead
January
Dec
Example of high level roadmap

2828
Agenda
• Key figures

2929
Companies usually pursue either a Skim Pricing goal or a
Penetration Pricing goal
Source: Joel Dean HBR article entitled, Pricing Policies
Skim Pricing Penetration Pricing
Penetration pricing pursues the
objective of quantity maximization
by means of a low price.
Skim pricing attempts to "skim the
cream" off the top of the market
by setting a high price and selling
to those customers who are less
price sensitive. Skimming is a
strategy used to pursue the
objective of profit margin
maximization.
1 2

3030
A Skim Pricing goal is more appropriate when:
• Demand is expected to be relatively inelastic; that is, the customers are
not highly price sensitive.
• Large cost savings are not expected at high volumes, or it is difficult to
predict the cost savings that would be achieved at high volume.
• The company does not have the resources to finance the large capital
expenditures necessary for high volume production with initially low
profit margins.

3131
A Penetration Pricing goal is more appropriate when:
• Demand is expected to be highly elastic; that is, customers are price
sensitive and the quantity demanded will increase significantly as price
declines.
• Large decreases in cost are expected as cumulative volume increases.
• The product is of the nature of something that can gain mass appeal
fairly quickly.
• There is a threat of impending competition.

32
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3333
To help you define your goal, it is important to identify where
your product(s) is on the product lifecycle
INTRODUCTION GROWTH MATURITY DECLINE
PRODUCT
EXTENSIO
N
SALES

3434
To help you define your goal, it is important to identify where
your product(s) is on the product lifecycle
PRODUCT
EXTENSIO
N
SALES
• The customers who
buy products in the
“Introduction” phase
are called “Innovators”
• These people buy new
products with the belief
that sooner or later
these new products
will significantly
improve our lives
• They are also known
as technology
enthusiasts, or
“techies”
• They represents 2.5%
of the market
buy products in the
“Growth” phase are
called “Early adopters”
• These people are often
considered to be
visionaries or
revolutionaries, who
want to use the
discontinuity of any
innovation to break
from the past into a
new future
• They represents
13.5% of the market
buy products in the
“Maturity” phase are
called “Early majority”
considered to be
pragmatists, who will
only adopt a new
product after a proven
track record
• They represents 34%
of the market
• The customers who buy
products in the “Decline”
phase are called “Late
majority”
considered to be
conservatives, who are
very price sensitive,
skeptical, and
demanding
• They represents 34% of
the market
Source of inspiration: Moore and McKenna

3535
It is said there is a “chasm” to overcome in the “Growth”
phase
PRODUCT
EXTENSIO
N
SALES
• This “chiasm” is a threshold that many new products fail to cross. Many new product are successful in
selling to the Early Market. However, they never achieve the critical mass needed for mass consumer
adoption. It is usually said that these products fell into a chasm.
Source of inspiration: Moore and McKenna
The “Chasm”
Early Market Mainstream Market

3636
Please see below a more comprehensive list of goals that you
can select for your product
Current profit
maximization
Current
revenue
maximization
Maximize
quantity
Maximize profit
margin
Quality
leadership
Partial cost
recovery
Survival Status quo

37
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Pricing Strategies Template & Framework| By ex-McKinsey