B2B Price Elasticity
An Opportunity for Price Improvement
Dick Sobel, Managing Director
The Pricing Analytic Group
www.pri...
Today’s Speaker
Dick Sobel
Managing Director
The Pricing Analytic Group
With 20 years of direct pricing experience, Dick o...
B2B Price Elasticity
An Opportunity for Price Improvement
3
• Elasticity in the Pricing Process
• How Elasticity impacts B...
4
Pricing
Strategy &
Forecasting
Price
Management
Price
Elasticity
Contribution
Margin
Price
Realization
KPI
Dashboard
Fin...
5
Products
Competition
Segmentation
Customer
Willing to Pay
Pricing Elasticity Attributes
• Price Sensitive
• Indifferent
...
6
Price Change Scenarios Impact on Gross Margin Dollars Elasticity
Increased price with
decreased unit volume
Gross Margin...
What is Counter Intuitive Price Elasticity?
7
• Increased Pricing with Increased Unit Volume
• Market demand is increasing...
What is Counter Intuitive Price Elasticity?
8
• Decreased Pricing with Decreased Unit Volume
• Competitors dropped prices ...
Customer Case History
9
Case History
• Distributor with 10,000 SKU's and 1500 customers serving a large North
American cus...
10
$82,857
$15,749
$78
$5,216
$568
$92,744
$50,000
$55,000
$60,000
$65,000
$70,000
$75,000
$80,000
$85,000
$90,000
$95,000...
11
9656
8057
6862
5975
5262
4675
4185
3771
3415
-10
-8
-5
-3
0
3
5
8
10
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
...
12
© 2007 PricePoint Partners. All Rights Reserved. | Contact 330-342-0923 or info@pricepointpartners.com
2012
1% price
ch...
-401
120
-720
1446
-480
-0.4%
0.6%
0.9%
0.7%
1.6%
1,000
750
500
250
0
250
500
750
1,000
1,250
1,500
1,750
-0.5%
-0.3%
0.0%...
-279
1400
-959
960
-559
0.0%
-2.6%
1.1%
0.0%
0.0%
(1,250)
(1,000)
(750)
(500)
(250)
0
250
500
750
1,000
1,250
1,500
1,750
...
15
Customer Data Analysis
Year on Year Comparisons – Unique SKU
2012/11 Yr/Yr
2013/12 Yr/Yr
1: Counter Intuitive decreasin...
Case History Results & Actions
16
• The distributor is achieving a 1.5% annualized price improvement
(>$1MM) on affected s...
Final Thoughts
17
• Price elasticity measurements are integral to price
forecasting & prediction
• Counter intuitive elast...
The Pricing Analytic Group
18
Dick Sobel, Managing Director
The Pricing Analytic Group
The Pricing Analytic Group is led b...
19
Zilliant provides B2B companies with data-driven guidance, enabling smarter
pricing and sales decisions to help busines...
of 19

Price Elasticity in B2B

Find opportunities for Price Improvement through the use of Price Sensitivity & Elasticity Analysis in B2B
Published on: Mar 4, 2016
Published in: Marketing      Business      
Source: www.slideshare.net


Transcripts - Price Elasticity in B2B

  • 1. B2B Price Elasticity An Opportunity for Price Improvement Dick Sobel, Managing Director The Pricing Analytic Group www.pricing-analytic.com
  • 2. Today’s Speaker Dick Sobel Managing Director The Pricing Analytic Group With 20 years of direct pricing experience, Dick offers expertise in pricing analytics, optimization, realization and strategy. He has directed Stage-Gate® new-product development programs, value based and conjoint pricing engagements and has developed closed-loop pricing strategies incorporating planning and controlling P&L scenarios. His distinguished career at Emerson Process Management, a business unit of Emerson, included senior leadership positions in pricing, global marketing, finance and cross-functional teams. He was an early proponent of pricing strategy within the Emerson group of companies, where he developed, presented and implemented three- to five-year pricing plans that achieved significant price realization and profit improvement. Dick is also Director of Analytics for PricePoint Partners, a leading national pricing consultancy. 2
  • 3. B2B Price Elasticity An Opportunity for Price Improvement 3 • Elasticity in the Pricing Process • How Elasticity impacts B2B pricing • Client Case History • Results & Actions
  • 4. 4 Pricing Strategy & Forecasting Price Management Price Elasticity Contribution Margin Price Realization KPI Dashboard Financial Statement Price Management Transactional Discounting Price Waterfall Channel Mix Segmentation Product Mix B2B Elasticity in the Pricing Process Data Data • Price Elasticity measurements contribute to price forecasting & prediction • It is an Integral link to price optimization • Price realization is linked to your financial statements
  • 5. 5 Products Competition Segmentation Customer Willing to Pay Pricing Elasticity Attributes • Price Sensitive • Indifferent • Loyal • Share of Wallet • Churning • Highly Competitive • Moderately Completive • Minimally Competitive • Exclusive • Commoditized • Moderately Differentiated • Highly Differentiated • Product Life Cycle • Product Alternatives • Geography • Industries • Buying Patterns • Customer Size • Choose the attributes that most represent your business • Avoid placing a value on the attributes • Select attributes based on data & science and avoid “gut feel”
  • 6. 6 Price Change Scenarios Impact on Gross Margin Dollars Elasticity Increased price with decreased unit volume Gross Margin dollars may increase or decrease depending on unit volume Intuitive Decreased price with increased unit volume Gross Margin dollars may increase or decrease depending on unit volume Intuitive Increased price with increased unit volume Maximum Increase in Gross Margin Counter Intuitive Decreased price with decreased unit volume Maximum Decrease in Gross Margin Counter Intuitive B2B Price Elasticity Outcomes
  • 7. What is Counter Intuitive Price Elasticity? 7 • Increased Pricing with Increased Unit Volume • Market demand is increasing faster than forecasted • Competitors implementing even higher price increases than you • Elasticity Attributes are favorable for your products and services • Competitors exiting the business • Under Pricing your New Products • Seasonality, advertising & promotions • Price is not causing the unit volume change • Further review of market segments & trends • Opportunities for more aggressive price actions
  • 8. What is Counter Intuitive Price Elasticity? 8 • Decreased Pricing with Decreased Unit Volume • Competitors dropped prices even more than you • Market demand dropping faster than forecasted • Elasticity attributes unfavorable to your products & services • Customer Churn • Seasonality, advertising & promotions • Price is not causing the unit volume change • Further review of market segments & trends • Change in price strategy • Prune product line or exit business
  • 9. Customer Case History 9 Case History • Distributor with 10,000 SKU's and 1500 customers serving a large North American customer base • Company employs a cost plus approach to pricing • Prices are raised to compensate for vendor cost increases, however there is minimal visibility on subsequent unit volume and margin • The served markets are very competitive with different distributors selling the same products within the same territories and to the same customers . Desired Outcomes: • Using an elasticity tool to improve price realization • Ensure that predicted gross margin outcome and price realization is favorable • Optimize pricing through effective segmentation with a sustainable strategy
  • 10. 10 $82,857 $15,749 $78 $5,216 $568 $92,744 $50,000 $55,000 $60,000 $65,000 $70,000 $75,000 $80,000 $85,000 $90,000 $95,000 $100,000 $105,000 Gross Margin$ Price Rebate Material Volume/Mix Gross Margin$ Customer Data Analysis SKU Elasticity from a Price Realization perspective Year on Year Metrics Prior Year Units: 6862 Current Year Units: 6815 Prior Year Sales: $246K Price increase: 6.4% Current Year Sales: $260K Elasticity: (0.11) %GM From 33.7% to 35.7% • Low elasticity prompted a more aggressive price action • Price realization exceeded increases in material cost, rebates & mix • Results were measureable and tied to the financial statements
  • 11. 11 9656 8057 6862 5975 5262 4675 4185 3771 3415 -10 -8 -5 -3 0 3 5 8 10 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Units Units Percent change in price % Price Change Customer Data Analysis SKU Elasticity from a Gross Margin Dollars perspective Year on Year Metrics Prior Year Units: 6862 Current Year Units: 6815 Prior Year Sales: $246K Price increase: 6.4% Current Year Sales: $260K Elasticity: (0.11) %GM From 33.7% to 35.7% • Excellent gross margin outcome with low elasticity • Unit volume changes are minimal • Any customer or SKU can be graphically represented as required Graph depicts units needed to maintain gross margin after a price change without elasticity considerations
  • 12. 12 © 2007 PricePoint Partners. All Rights Reserved. | Contact 330-342-0923 or info@pricepointpartners.com 2012 1% price change = x % of qty Percent change in price Yr to Yr Change in Quantity Percent change in quantity Elasticity SKU Description Units $ Sales %GM 10635 JUNIOR MINTS 501 $6,958 7.1% 0.4% 6.0% -11 -2.1% -0.37 10636 SUGAR BABIES 134 $1,884 8.2% 1.4% 5.0% -10 -6.9% -1.48 10640 CHUCKLES ASST 268 $4,020 6.7% 1.3% 7.8% -30 -10.1% -1.41 10644 NESTLE CRUNCH BAR 1005 $20,741 7.7% 0.4% 4.6% -18 -1.8% -0.40 10647 NESTLE 100 GRAND BAR 445 $9,196 7.9% 2.7% 3.4% -44 -9.0% -2.85 10757 WET ONES ANTIBACTERIAL 2013 $4,277 19.2% 1.1% 3.2% 69 3.5% 1.11 10772 MCORMK RSTD GAR BRD SEA 1320 $20,971 13.0% 9.2% 3.3% 307 30.3% 8.09 10784 BIG MAMA SAUSAGE 4047 $37,520 16.4% 0.3% 8.9% 109 2.8% 0.32 10800 BABY RUTH 1504 $20,685 7.7% 2.8% 4.0% 151 11.2% 2.69 13460 HERSHEY CH CHP KIS DGH 30 $1,452 13.9% 3.9% -6.3% 6 25.0% 3.40 13462 HERSHEY REESES PB DGH 38 $1,864 15.1% 6.1% -3.7% 7 22.6% 5.41 10689 RICH'S PIZZA DOUGH 7IN 1397 $65,272 12.3% 3.8% -5.2% 227 19.4% 3.34 17579 WRIGLY 5 RAIN 5801 $54,164 7.2% 1.7% -0.7% -76 -1.3% -1.73 20350 AL ICE SMOOTH LEMONADE 83 $4,273 28.9% 1.6% -5.6% -8 -8.8% -1.59 18360 HOT N RD CHEESBRGR 1346 $28,871 14.5% 0.6 -3.1% -27 -2.0% -0.64 Price Sensitivity Bands – SKUs - Customers Increased Price - Increased Volume Increased Price – Decreased Volume Decreased Price – Increased Volume Decreased Price – Decreased Volume (1) (2) (3) (4) (5) SKU - Customers A B C D Customer Data Analysis Segmented Price Elasticity Bands Segmented By: • Customer • Product Family • Total Spend • Market • Elasticity outcomes are segmented in selected groups • Outputs are used for forward looking price prediction • Counter intuitive changes not direct result of price action • Scalable from spreadsheets to enabling pricing software Increased Price - Decreased Volume A Increased Price - Increased Volume B Decreased Price - Increased Volume C Decreased Price -Decreased Volume D
  • 13. -401 120 -720 1446 -480 -0.4% 0.6% 0.9% 0.7% 1.6% 1,000 750 500 250 0 250 500 750 1,000 1,250 1,500 1,750 -0.5% -0.3% 0.0% 0.3% 0.5% 0.8% 1.0% 1.3% 1.5% 1.8% %PriceChange Small Small Unit Change Medium Medium Large Segmented by Customer Total Spend Customer Data Analysis – Unique SKU Previous Year Performance by Customer total spend 3A1 D 2B 4BIncreased Price - Decreased Volume A Increased Price - Increased Volume B Decreased Price - Increased Volume C Decreased Price -Decreased Volume D 5A
  • 14. -279 1400 -959 960 -559 0.0% -2.6% 1.1% 0.0% 0.0% (1,250) (1,000) (750) (500) (250) 0 250 500 750 1,000 1,250 1,500 1,750 -3.0% -2.8% -2.5% -2.3% -2.0% -1.8% -1.5% -1.3% -1.0% -0.8% -0.5% -0.3% 0.0% 0.3% 0.5% 0.8% 1.0% 1.3% 1.5% %PriceChange Small Small Medium Medium Large 2C 3A1 4 5 Customer Data Analysis – Unique SKU Current Year Performance by Customer total spend Increased Price - Decreased Volume A Increased Price - Increased Volume B Decreased Price - Increased Volume C Decreased Price -Decreased Volume D Segmented by Customer Total Spend
  • 15. 15 Customer Data Analysis Year on Year Comparisons – Unique SKU 2012/11 Yr/Yr 2013/12 Yr/Yr 1: Counter Intuitive decreasing 2: Counter Intuitive increasing 3: Intuitive 4: Counter Intuitive increasing 5: Intuitive 1: No price change – continued unit decline 2: Intuitive, increased % gross margin 3: Pricing error 4: Attributes favored caution, gross margin 5: Price sensitive customer 1D Medium Medium Large 2B 3A 4B 5A Increased Price - Decreased Volume A Increased Price - Increased Volume B Decreased Price - Increased Volume C Decreased Price -Decreased Volume D
  • 16. Case History Results & Actions 16 • The distributor is achieving a 1.5% annualized price improvement (>$1MM) on affected sales where price sensitivity-elasticity is included in their price improvement process • Client price forecasting and prediction is combined with measurement, monitoring and KPI dashboards linking results to financial statements • Additional market segments and products will be added to the program going forward • Price Optimization software can automate the real time analysis and price setting process in a scalable way
  • 17. Final Thoughts 17 • Price elasticity measurements are integral to price forecasting & prediction • Counter intuitive elasticity measurements should prompt market, customer & segment analysis but price is not responsible for unit volume changes • Price elasticity attributes impact pricing actions • Expect price realization & gross margin improvement • Process is scalable, from spreadsheets to enabling pricing software
  • 18. The Pricing Analytic Group 18 Dick Sobel, Managing Director The Pricing Analytic Group The Pricing Analytic Group is led by Dick Sobel, Managing Director. He is also Director of Analytics for PricePoint Partners, a national pricing consultancy providing pricing analytics, training, strategy and price optimization services to B2B clients achieving profitable growth. Our pricing consultants provide analytic tools and evaluate price momentum throughout the cash cycle. We improve pricing for incumbent and new products with: • Value based pricing & selling programs • Pricing Analytics • Developing effective pricing strategies Email: info@pricing-analytic.com Phone: 330-958-4036
  • 19. 19 Zilliant provides B2B companies with data-driven guidance, enabling smarter pricing and sales decisions to help businesses make their numbers. The Zilliant optimization platform uses advanced science in its price optimization applications to enable companies to overcome the massive complexity in their businesses. Our flexible SaaS model allows customers to quickly and confidently improve their financial performance by integrating into existing systems and processes. Learn more about how Zilliant helps companies price more profitably and sell more effectively at www.zilliant.com. Phone: 512.531.8503 Email: _mdr@zilliant.com Contact Us Today to Learn How We Help Companies Price More Profitably.

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