Download 05.18.12 SXPEG Notes.. - Woods Creek Consulting

Sales Executive Peer Group
May 18, 2012
“Product Planning & Pricing”
Speaker:
Bob Wallach, Continental Mills
Purposes of the meeting: To understand the followings:
o How to price and manage the product.
o When is appropriate to kill the product vs. to reduce the cost vs. to increase the price of
the product.
o How to increase price and how much.
o How Sales can engage more in pricing decision making process.
Attendees’ questions to the speaker:
o Thoughts on Stage Gate
o How to avoid the margin’s erosion when cost increases?
o How to break price point without changing the product dimension?
o When to engage the head of sales?
o Price vs. value - what should the price be without pricing the product based on cost of
goods sold?
o How/when to sell on factors other than price?
o Why should my price be higher than before?
Product Management & Pricing Overview:
o Continental Mills sells products for food-service. This is a B2B between Continental
Mills and manufacturers/distributors.
 Highly commoditize and more price competitive.
 60% of cost is commodities, ingredients, packaging, and fuel, which should be
priced multiple times.
 Pricing negotiation with distributors/retailers varies by:
 Relationship and power
 Price elasticity from consumer side
 Differentiation from other competitors
 Sales team needs to be confident
o Margin varies depending on the strategic role of your product and positioning in the
market.
Stage Gate Process:
o Stage-gate process is a project that is divided into stages and separated by gates. This
process is used in moving an idea of a new product to launch while asses the quality of
an undertaken idea. 1
 Choose 1 or a few new product(s) out of many developed products/ideas.
 Make decision on which product to introduce to the market. This should be
integrated with the growth strategy.
Cost change or cost increase:
o Overview:
 For a product with long lifecycle, cost usually goes down overtime.
 To manage a long-term relationship with the distributors, document cost
savings that are from the product development or cost effectiveness.
 MECP (Make Every Customer Profitable): look into contribution margin of the
customers (focus on margin, not the revenue)
 Pitfalls:
 Not investing in supply chain vertically in the past to response faster in
the future
 Not try to find a way to produce cheaper and better (always compete
with yourself)
o What can you do?
 Increase Price
 Proactive Pricing vs. Reactive Pricing
o Don’t take for granted on where you are in the market place.
o Cost saving should be part of the conversation with customers.
o Show customers commodity charts.
o The price of the same product & same brand should be the
same for customers who are retailers. But the market price
depends on how retailers want to price it.
o Educate customers to build trust.
 Process to raise price depends on the strategy. A few options are:
o Announce pricing change to every customers
o Go to the major customers first
o Change with one customer, but not with another
o Promotion program
o Increase price through seasonality
 How to inform the customers
o In B2B, this should be done through one-on-one conversation.
o Do not put it in a letter because the customers will push back.
o Customers will try to drag it out as much as they can.
 Reduce Cost
 Active cost saving program:
o Change ingredients of the product to save cost.
o As economy gets better, the cost goes up. You should allocate
more work to the cheaper labor, but ego is sometimes involved.
1
Stage–gate model, Wikipedia (http://en.wikipedia.org/wiki/Stage%E2%80%93gate_model)
o
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Get the clients out of their comfort zone to expose them to
different options.
o Change management is a huge issue because people don’t want
to change.
Eliminate the Product
Float Your Resume
Takeaways:
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A price increase should be recognized and celebrated on.
Product marketing makes the pricing decision.
Product marketing with marketing analytics should have good information and
better understand what customers value and how to price the product.
Product marketing should provide information to sales.
Senior leadership should engage Sales into the product marketing because Sales
have insights on foreseeable future and insights from customers.
 Sales and Marketing should work
 Cross training between Sales and Marketing – conversation will happen
organically.
 Define clear responsibilities on who owns which account and who sets
the price discount.
To do:
 Sales should try to look ahead and initiate the pricing conversation
because it would be too late if this conversation happens while the price
is being readjusted.
 Sales should represent the clients in terms of informing the company on
how the client would react. Both Sales and Marketing then resolve on
what would be the solution.
 Setting expectation on being business professional first and sales
second.
Not to do:
 Sales will be excluded from the pricing decision in the future if they fight
against price increase