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January 19, 2009

Strategic Pricing - Getting Paid for the Value You Provide

I’ve worked with a number of people exploring how to maximize their pricing and margins.  Their industrial customers have been increasing the pressure for price discounts at the same time that process improvements like Lean Manufacturing and additional outsourcing to low cost countries have become saturated.  The key here is to provide genuine customer value that is also unique from the competition.  This requires in-depth understanding of your customer’s business / processes so that you can assess opportunities and determine the impact of innovative products.  The highest utility will result if you provide technical superiority that helps your customers differentiate their own products and services.  Next would be something that reduces cost of ownership – generally based on higher throughput or reliability.  Finally, you can simplify how the customer obtains and utilizes your product over the entire cycle of evaluation, purchase, delivery lead-time, installation, routine operation and eventual obsolescence.


By becoming an expert in your customer’s business, you are able to both develop competitive products that anticipate their needs and communicate this value in terms meaningful to them.  This “value equation” provides a tool to shift the dialog from a defensive reaction when faced with discount demands to a logical discussion of how your product is used and where there are opportunities for cost reduction based on product features, volume, timing or other parameters.  This transition won’t happen overnight – it requires that every customer discussion be disciplined to focus on applications, value and tradeoffs that can be made to optimize price/performance.  For a more complete discussion of this topic, see the white paper on my website at:


http://www.strat-edg.com/files/Strategic_Pricing3.pdf
 

Two excellent books on this topic are:

  • “The Strategy and Tactics of Pricing” by Thomas Nagle and John Hogan, Pearson Prentice Hall, 2006.
  • “Pricing with Confidence” by Reed K. Holden and Mark R. Burton, John Wiley & Sons, 2008.

Posted by rlkbeemer at 07:59 PM | | Comments (0) | TrackBacks (0)

January 07, 2009

Moving from Strategy to Results

When the senior management team invests their time and energy in developing corporate strategy, they expect to see measureable progress.  When that’s not forthcoming, the time spent offsite brainstorming seems like just so much group catharsis.  In my experience, the best mechanism to ensure execution against the strategy is the concept of Key Result Areas or KRA’s.  These KRA’s represent business processes, skills or projects that have been identified as critical to the strategy – areas where the firm must excel.  Examples might include product quality, lean manufacturing, fast product development, expertise in new markets or specific new products.

The KRA’s are a mechanism to move from long term strategic concepts and objectives to short term, executable projects.  They are typically built into the annual plan for a business unit.  Each KRA includes a description (explaining how it supports the strategy), metrics and a set of projects.  These projects are where the action takes place - each has its own definition, owner, metrics and schedule.  The owners are typically direct reports to a business unit VP and are expected to marshal internal and cross functional resources to achieve the desired outcome.  To ensure progress, each KRA and its related projects are reviewed by the business unit VP on at least a monthly basis.  In this way, the strategy is broken down into well defined pieces that can be implemented by working level managers and teams.

I’ve led traditional strategic planning exercises and I’ve led teams in the formation of an executable strategy using KRA’s.  The former sat on the shelf until the following year with only some residual influence over the course of day-to-day business management.  The KRA approach, in contrast, became an integral part our staff meetings and yielded an 85% hit rate on achievement of strategic goals.  For additional information, see the white paper on my website at:

http://www.strat-edg.com/files/Strategic_and_Business_Planning2.pdf


 

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