Solutions Pricing Workshop

Executive Workshop Presentation
Date
Winning the Solutions
Pricing Game

3
TRANSFORMING CORE OFFERING INTO PRODUCT/SERVICE SOLUTION
Bundler
Component
specialist
Integrator
Inte-
gration
Glue
Depthofintegration
HighLow
Degree of packaging
HighLow
Solutions
provider
The
extent to
which a
supplier
performs
activities
that make
compo-
nents
work
together
to fulfill a
specific
customer
need
Extent to which components are
bundled together for specific customers
This document is a partial preview. Full document download can be found on Flevy:
http://flevy.com/browse/document/solutions-pricing-workshop-752

6
EXAMPLE OF MULTIPLE ROLES PLAYED BY 1 SUPPLIER
Depthofintegration
HighLow
Degree of packaging
HighLow
Motherboards
Chips
•Customized
solutions
which differ by
customer
•Complex sale
involving high
degree of
professional
services
support during
the sales
process and
post contract
. . . however, companies can simultaneously be in multiple
quadrants as well

9
EXEMPLARY SOLUTIONS BUSINESS
• Vertically driven,
integrated
hardware/software
offerings anchored with
IBM products
• Leverages distinctive
product/service
expertise, customized
for each vertical
• Deepen
penetration into
customer
business system
• Increase
switching costs
• Drive increased
sales of products
and services
• Elevate and
strengthen
customer
relationships
• Build superior
market position
• Dramatically
increase
profitability
Solutions
aspirations
Global Services
Distinctive solutions
offerings
• First player to offer
credible, end-to-end
telecom infrastructure
integration
– Fixed line, voice, data
and VOIP
– Mobile voice and data
– Integrated switching;
link to optical
backbone
Financial impact
(EY ’00)
• Responsible for
75% of IBM’s total
growth1
• IBM TRS2 is 315%
vs. Dow increase of
100%3
• Provided bottom-line
impact of $9 billion
in gross profit in
1999
• Revenues up 20%
per year1
• TRS3is up 305%,
while competitor’s
(Lucent) up only
25%4
1 From 1997-99
2 Total return to shareholders
3 Since January 1996
4 Over last 3 years
Source:Historical stock prices, annual reports

12
ENSURING KEY FACTORS FOR SUCCESS ARE IN PLACE
Momentum
for rollout
Organiza-
tional
alignment
Alliances,
partnerships,
acquisitions
Viable
solutions
business
model
New selling
and
marketing
approach
Solutions
pricing
excellence

15
Indexed component pricing
DRIVERS OF NET PRICING PHILOSOPHY DIFFER BY ROLE ... CONCEPTUAL
Margin
Operational solution premium
Volume/margin managementDiscrete value
Intellectual property-based pull
Components
A, B, C, D
Turnkey
solution
Depthofintegration
HighLow
Degree of packaging
HighLow
Component
Compo-
nent
150
100
+
Service Service/
component
150
100 100 90
Service/components
A B C D
+ + +
100
A B C D
Components
+ + +
30
70
Margin
Costs
80 4080 3080 30 20
30 25 25 20
30
70 70 70
20 20 20 20
Component equi-
valent price: 125+
Component
equivalent
price: 90
Component price: 100
Component
price: 110
70
70 70

18
STEPS TO SOLUTIONS PRICING EXCELLENCE
Calculate
• Communicate
solution value
• Communicate
price
structure
Communicate
• Negotiate to
preserve
solution value
• Manage post-
sale solution
economics
• Leverage key
learnings
CaptureCalculate
• Quantify
maximum
price range
• Establish
negotiation
price range

21
SOLUTIONS PRICING EXAMPLE –
CUSTOMER BENEFIT
DISGUISED METALS
INDUSTRY EXAMPLE
From ...
Existing technology
Recycled
metal
Recycled
metal
Higher yield from same
scrap metal
To ...
Improved technology

24
SOLUTIONS PRICING EXAMPLE DISGUISED METALS
INDUSTRY EXAMPLE
Leverage learning
•Based on this reference site, next deals
were tailored for higher value capture for
supplier
Calculate Communicate Capture

27
VALUE CREATION THROUGH SOLUTIONS – RYDER
-19
160 159
Net earnings from
continuing operations
$ Millions
1996
1997 1998
Source: Literature search
From…
Product-focused
component offerings,
such as truck rental or
automobile transports
To...
Customer-focused integrated
logistics solutions
Value proposition
• Complete inbound and
outbound logistics solutions
• Customer inventory
management
• 1-stop shop for fleet
management, operations,
and maintenance
$180 million
increase in
earnings
Warehouse
U-RENT
Unfortunately,at the end of 1999 going into
2000, Ryder decided to extend this program
beyond their core hub and spoke service to
inter-city service - pushing their cost
structure and ability to provide acceptable
service levels out of bounds – the program
crashed, had to be restructured, and they
are still in damage control with many
disappointed customers

30
OPPORTUNITY LOST BY NOT PROVIDING SOLUTIONS
Components and costs
$
Source: Company interviews
Supplier offers
Individual cell
phone
components, such
as LCD screens,
chips, and
semiconductors
ICs
Passives
LCDs
PCB, key
pad, buzzer
discrete
semiconductors
Other
Components
in supplier’s
product line
Customer wants
Cell phone display module
solutions
By competing at a
component level the supplier
lost bids to competitors,
even though no other
competitor could supply the
breadth of product
customers wanted
44.0
5.9
20.0
8.0
7.1 7.1
Lost
opportunity
1.4
1.6
DISGUISED ELECTRONIC
COMPONENT EXAMPLE

33
Best-in-class pricing behavior
•Balance their presence across multiple decision
makers employing different value messages towards
different audiences
•Set ‘solution’ pricing based on in-depth assessment
of the aggregate, segment specific incremental value
provided vs. next best alternatives
•Deeply understand the value provided, know when
the issue is strategic (technical choice) vs. tactical
(purchasing), and stand firm / know when to call a
bluff
•Develop fact based economic valuation tools and
value argumentation / communication vehicles to
convey the full range of solution benefits delivered
Standard pricing behavior
• Spend 95% of their time with their
customers’ purchasing
departments
• Set ‘component’ prices cost-plus
• Over-react to ‘low-ball’ pricing
scare tactics from purchasing
• Deliver on technical specifications
CHARACTERISTICS OF STANDARD vs. BEST-IN CLASS SYSTEM /
PROJECT / SOLUTION PRICERS

1
Flevy (www.flevy.com) is the marketplace
for premium documents. These
documents can range from Business
Frameworks to Financial Models to
PowerPoint Templates.
Flevy was founded under the principle that
companies waste a lot of time and money
recreating the same foundational business
documents. Our vision is for Flevy to
become a comprehensive knowledge base
of business documents. All organizations,
from startups to large enterprises, can use
Flevy— whether it's to jumpstart projects, to
find reference or comparison materials, or
just to learn.
Contact Us
Please contact us with any questions you may have
about our company.
• General Inquiries
support@flevy.com
• Media/PR
press@flevy.com
• Billing
billing@flevy.com

Solutions Pricing Workshop

Recommandé

Recommandé

Contenu connexe

Plus de Flevy.com Best Practices

Plus de Flevy.com Best Practices (20)

Dernier

Dernier (20)

Solutions Pricing Workshop