- Use the price waterfall structure to harmonize some aspects of prices to global customers while using other building blocks to differentiate net net prices. E.g. have a uniform on-invoice price across markets for the given customer, but differentiate actual net net prices by offering different off-invoice rebates in local markets for customers performing local activities to “earn” those rebates
- Product differentiation or service-bundling: essentially make the product specific to the local market. In some industries that can work well, whereas in others it is ignored by sophisticated buyers comparing the Base product (i.e. the product without local differentiators)
- Value-added services: offer services locally that can only be delivered locally and thus only should be considered when pricing locally
- Arguing that cost bases are different in different markets and so should prices be (even if you are doing value-pricing)
- Argue that the customer’s resale prices (in e.g. retail or industrial input markets) also vary by country, and therefore it should be accepted/understood that your prices differ.
- Focus on value rather than costs and price, and build local market cases for how your customer can achieve better sales prices with their customers.
- Stall or delay harmonization, as time = money. The more you can delay a time where prices get harmonized the longer you can reap the profits of higher prices in some markets.
- Demand from the customer that you must increase prices in low-priced markets so both sides are equally well off in an harmonization scenario (often, they cannot convince their local people to accept a 20% price hike, even if they on the other hand could get a 20% price reduction in a high-price country)
- Allow negotiations to happen locally, maybe even removing the option for global negotiations: if there is nobody in the sales organization to negotiate a global price with (in reality or just what is said to the customer), then it is more difficult to force through global pricing.
More and more companies sell outside their home country. Not only has it become easier and cheaper to reach markets around the world but often a specific customer segment in Germany has more in common with a specific customer in France or UK rather than between two different customer segments in Germany. This means there is a good business case for selling abroad, for both small as well as large corporations.
- How to proactively set prices by country? How do I optimize my prices?
- If in an established business, prices often differ by country/region. This is not necessarily a bad thing but can lead to problems with customers who might exploit those price differences if they can.
- How to deal with currencies: should we price in one single currency (the “home” currency e.g. USD) or should we price in local currencies?
- Who should decide prices: Headquarters or local organizations?
- How to communicate prices in different markets when the customers and market conditions differ? When value perceptions or competitive situations are different
While there is obviously not one single answer to fit all corporations, some best practices and ideas do exist. In this article we are looking at how you can proactively set prices by country and manage different market conditions.
B2B Pricing managers often complain that sales people are not very good at pricing and that they must do better. While it should not stand alone, one tool to help with that is inclusion of price into bonuses.
- Pocket Price: what do we make per unit at the end of the day.
- Pocket Revenue: what do we get in at the of the day, multiplied by quantity, so not just focus on high price, low-volume items.
- Pocket profitability: Takes into account that some products are more profitable than others.
- Pocket revenue percentage change: still focuses on price and profit, but also pushes the sales people to do better.
- Price performance against target prices: measure how well the sales person is doing against a set of target prices: below, on target or above.
To learn how Stratinis can help your business implement an effective pricing strategy and roll this out to your global sales teams, visit our website.
When pricing to global B2B customers who buy from you in different places around the world there are many things to watch out for:
- Spend time to identify value drivers: why should customers buy from you rather than from an online competitor or an offline competitor. Turn this insight into pricing action. Be worried if the only insight is that customers should buy from you because you are cheaper or offer free delivery.
- Build a model for your pricing that can be automated – but build safe-guards (see competitor prices)
- Make sure your software tool can both update prices daily, if needed, and be used for simulating prices & profitability before committing to the website.
- Include competitor prices in your model, but avoid getting into a negative spiral of you lowering prices when your competitor does and then they do the same when you lower your prices (all within the legal boundaries of non-collusion of course).
- Segment your products based on velocity, and use that segmentation for pricing. Update segments frequently.
- Run price promotions for short periods. You have no real costs of changing prices, so do so frequently.
- Consistently analyze price promotions for ROI. Use insights to promote where and when it matters, not just all the time.
- Gather as much data as possible about your customer and visitors to your site. Knowledge can help you price better.
- Differentiate prices (and offers) for known/registered customers and anonymous customers.
- Segment customers and use those segments for pricing. Update segments frequently.
Here’s 10 ways you can control your net prices:
1. Identify all discounts, rebates, “marketing” contributions and other amounts spent directly with the customer. Map it all in a price waterfall.
2. Identify 2-3 key performance indicators from the waterfall (pocket price is just one) and communicate relentlessly about them internally.
3. Communication with the sales team is key. Explain reasons for the control. Solicit feedback and suggestions for process improvement.
4. Build a process that allows for exceptions with the right approval steps in place.
5. Ban exceptions that are not properly justified.
6. Consider if all pricing/discounting decisions must go through approval or if you can find thresholds that would allow for auto-approval. Otherwise, you might be bombarded with small approvals and commercial agility might be lost. Ideas for auto-approval can include: above internal target net price, X% above competitive prices or “market” prices, minimum customer size (order or annual value), pre-approved (by the pricing team) customer segments or product categories.
7. When going from a less-strict to a more-strict price controlling process, spend a lot of time (yes, more than you think you need to) on managing the change and resistance both from external customers AND internal stakeholders. You may otherwise be choking off key customer spends.
8. Use software to support the process – otherwise you overload on data and manual exceptions.
9. Allow for controlling differences per market / business unit / country when doing international business. There ARE differences in how we all do business around the world.
10. Keep in mind that being in control is not the same as optimization. Control is good where you otherwise leave money on the table or have risks from customers exploiting the lack of internal control.
Don’t give access to cost information to sales people as they then tend to lower the price as long as the margin is positive and focus on cost arguments with regard to the customer – instead of producing value arguments and getting customers to pay more.
Do give access to costs (and thus margin) as sales people cannot optimise profits (“price” minus “costs”) without knowing the costs.
Doesn’t Know Costs
Bonus on Sales
Confusion, but tendency to sell more of Product A if it is cheaper and thus easier to sell.
Sell Product A as it is cheaper
Bonus on Profits
Push Product B as it is more profitable
During mergers and acquisitions, there are many things to take into consideration for the integration of the two organizations. Pricing is, or should be, one of the key focus areas as a solid implementation of the new organization’s pricing, terms & conditions can deliver significant synergies and benefits – whereas a failed M&A pricing implementation will expose considerable risks and often loss of combined profits.
If prices/terms/discounts are different between the two merging companies for roughly the same product/service – i.e. Company A charges 10 and Company B charges 12 today. In NewCo one would hope for a new price of at least 11, ideally 12, but if not managed well you could end up with 10 as the customer(s) exploit the situation.
Different discount or surcharge schemes exist (similar to price example above): customer ends up getting lowest common denominator – to the detriment of NewCo’s profits
Sales people give too many discounts/price concessions to secure their job in the NewCo (“look, I closed all my deals, so keep me”)
Customers refusing to recognise NewCo as new supplier unless they get some additional concessions – knowing that often senior management has something at stake with the acquisition and therefore they can pressurize sales teams into giving concessions.
Pricing/Sales teams don’t understand the value pricing of their new colleagues: Company A has a different value pricing approach than Company B and the sales people in NewCo that used to work for Company A are not able to properly value-sell Company B products, or vice-versa.
Pricing synergies (often being bigger and with more market power, within legal limits) are not materializing, as sales people don’t understand how to negotiate in the new environment – at least not for 1-2 years, meaning 1-2 years of synergies are lost.
Modelling: understanding current pricing as well as NewCo pricing options. Build models for allowing simulations of new NewCo pricing approaches. A tool like Stratinis Pricing can help support this process.
Internal strategy and people alignment
Internal materials to provide to pricing management but especially also sales people so they negotiate and achieve the best possible prices for NewCo
Internal training of sales team in new pricing model for NewCo
External materials to be shared with customers during communication and negotiation of new prices/discounts/terms
Negotiation – support, follow-up, and crisis handling for larger key accounts
Finn Hansen is the founder and CEO of Stratinis and has strong personal experience in this field from working with several multinational companies in implementing a strong pricing approach for merged organizations. In one global example the estimated benefits in operating income from this programme was USD 40 million annually. In another global business, the improvement in prices over 12 months after the acquisition concluded was EUR 24 million on combined sales of app 700 million.
Head over to Stratinis’ website and learn about how their Pricing Software can help manage and simulate AS-IS and TO-BE prices/discounts/terms and conditions.