manu carricano breakout amsterdam 2012 ppt
TRANSCRIPT
Complex Pricing…Simple Prices! The Power of Mass-Customized Pricing
Dr. Manu CARRICANO Director Pricing Center, EADA Business School
Director Research, Pricing Solutions Europe
« Harry: I'll have a number three. Sally: I'd like the chef salad please with the oil
and vinegar on the side and the apple pie a la mode. »
When Harry Met Sally, Rob Reiner, 1989.
Marketing vs. Pricing
Decision Protocol
Values Perceptions
Preferences
BehavioralIntentions
Attitudes Judgement Data
Stated ProtocolStated Preferences
Stated Intentions
BLA
CK
BO
X
Market Behavior
Market Constraints (budget, availability,…)
External factors (historical experience & Socioeconomics effects)
Market Information
Product Attributes
What do we try to understand / model?
WORLD CLASS PRICING™ PROCESS MATURITY
THE MASTER
WORLD CLASS
L E V E L 1
Baseline
Process is
Ineffective
L E V E L 2
Internal
Process
In Place
L E V E L 4
Optimization
Processes
In Place
L E V E L 3
Value
Processes
In Place
L E V E L 5
Excellence
in
Execution
Gain Control
Optimization Tools
Price/Value Analysis
30% of companies
40% of companies
<10% of companies
20% of companies
<1% of companies
Upsell & Add-on bundling
Sell core product
Cross sell: Mixed/Pure Bundling
Sell Integrated & customized solutions
Sell portfolio of solutions
PROCESS
MATURITY
LEVELS
© 2012 Pricing Solutions Ltd.
We need to open the black box
What makes it possible today?
Customer Addressability
Advanced Customer Choices Analysis
Mass- Customized
Pricing
Case 1: Pricing a Solution
Tested fees and fees variation:
•Fixed across scenarios
Methodology : Adoption Scenarios • Solutions’ first release options:
1.
2. Add-on
Applications
3. Add-on
Services
APP 2
APP 1
APP 3
BASE PACKAGE*
FULL SUITE OF APPS
ITEM 2 •3 service levels
ITEM 1 •3 service levels
*Required with all purchases
•Monthly Subscription Fee
•Installation Fee per Segment
•Monthly Subscription Fee
•Monthly Subscription Fee
$1.08 £0.70 0.85 €
•Range of -25% to +25% from Base Price Level [Level
3]
•For Full Suite, range of 10% to 30% discount rate for
bundling
Based on client case
Segment 2 should be the initial target of the Solution “go to market” strategy followed by Segment 1
Adoption rates decreased slightly in Segments 1, 2 and 3 at tested subscription fees
Segment 4 adoption rates increased after seeing tested subscription fees
Solution Adoption Rate
Example findings: Adoption rates per offer structure
Based on client case
Average % impact in Adoption Decision
Europe (N=306)
1.
2. Add-on
Applications
3. Add-on
Services
CARBON AND ENERGY CONTINUOUS DIAGNOSTICS
ENERGY PERFORMANCE
BASE PACKAGE*
FULL SUITE OF APPS
CARBON AND ENERGY •3 service levels
CONTINUOUS DIAGNOSTICS •3 service levels
*Required with all purchases
Panoptix
CARBON AND ENERGY
• Base Package installation and subscription fees impact the potential adoption of add-on applications and services – Adoption decision is weighted by more than half based on Base Package information
Example findings: Elasticity per offer structure
Solution
Based on client case
Pricing Model
Ad
op
tio
n R
ate
Own Price Effect Base Package Price Effect
AP
P 1
A
PP
2
AP
P 3
Total Europe (N=306)
E= -0.2
E= -0.2
E= -0.3
E= -0.3
E= -0.2
E= -0.2
Example findings: Elasticity per offer structure
Based on client case
Case 2: Restaurant Menu
Optimization
Understand customer decision nodes
Based on client case
Burgers EVM: EXTRA VALUE MEALS INCLUDES SOFT DRINK AND A CHOICE OF FRIES OR SALAD
Value Menu
Based on client case
Menu ite
m b
rand v
alu
e index
Menu item price elasticity
-0.1 -1.0 -3.0
50
150
100
Item 3
Item 4
Item 7
Item 2
Item 5 Item 6
Item 1
Long term value proposition implications
High item mix changes Low financial & value risk
Price & value insights Based on client case
Menu price
Custo
me
r choic
e s
hare
Risk identifiers
“Tipping Point”
Based on client case
Modeling Optimal Combinations Based on client case
Simulate
menu item
price
changes
View the
impact on
visits, sales,
margin mix…
Simulation tools
Demo simulator
Key Take Aways
Recommended Approach
Survey Steps
Scre
en
ing • U&A demographic
and screening questions
• Most recent purchase
• Satisfaction ratings
Stag
e 1
• Determine cannibalization to/from manufacturer’s portfolio
• Choose most preferred competitor Device (Fixed price – Single choice)
• CBC exercise with Manufacturers Device vs. winning competitor Device
• Only Manufacturers prices changing
Stag
e 2
• Determine choice/price sensitivity within the Manufacturer’s Portfolio
• MBC exercise with the price of all components varying each time
• None Option
0 1 2
Project Overview
Consumer Research:
Menu-Based Choice Experiments
Utility of each feature & price: For every individual
consumer
Channel / Margins & COGS
Main Pricing Database:
- Transactional - Market - Competitive
KPIs: Market Share
Predicted Revenue & Profit
Optimization: Find best product
set, given competitive environment
SIMULATION MODEL
So…
Mass-Customized Pricing?
App 1
App 2
App 3
Service 1
Service 2
Service 3
Service 4
Product 1 Product 2
Product 3
Product 4
Product 5 … …
…
…
… …
…
Mass-Customized Pricing: Builds offers which are tailored
to a custmomer…
… and are activated by a customer
As a conclusion…
Change in dynamics has meant traditional analytical
approaches such as Conjoint analysis are less valid
Rather than needing to identify the optimum product or
product line the focus is now on:
Identification of a set of features that should be
Offered ;
Understand how consumers want to customize
their product ;
The premium, if any, consumers are willing to pay
for a customized product ;
How to price each feature to simultaneously increase
customer value / revenue / profit.
Who wants to do Mass-Customized Pricing?
