Pricing

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Pricing

• Ken Homa

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Supply Chain Value Added
Profit
Value Added
Profit
Value Added
P R I C E
Profit
Value Added
PROFIT R.O.S. R.O.I
Parts Matl
SUPPLIER MANUFACTURER
DISTRIBUTOR RETAILER
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Gross to Net Pricing
LIST PRICE (GROSS PRICE)
FUNCL DISC.
PROMO ALLOW.
INVOICE PRICE (WHOLESALE PRICE)
CASH DISC
MKTG. PROG.
Volume Rebate Coop Advertising
NET PRICE
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MARKSTRAT

• Retail price (MSRP)
• channel mix
• Avg. retail price
• channel margins
• Avg. selling price

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MARKSTRAT

• Retail price (MSRP)
• channel mix
• Avg. retail price
• channel margins
• Avg. selling price

• Base cost
• learning curve
• Current transfer cost
• inventory / new production
• Avg. transfer cost

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Right Price ?
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Pricing Analyses

• Share gains losses

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If and only if all else constant
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Pricing Analyses

• Share gains lossesShare loss gt price ??? All
  else constant
• Unusual margins

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Pricing Analyses

• Share gains lossesShare loss gt price ??? All
  else constant
• Unusual marginsHigher price points, higher
  margins (generally) Favorable costs or
  unsustainable prices ?
• Value mapping

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Value Map
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Actual Price Predicted Price
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Value Shortfall
Value Surplus
Actual Price Predicted Price
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Pricing Analyses

• Share gains lossesShare loss gt price ??? All
  else constant
• Unusual marginsHigher price points, higher
  margins (generally) Favorable costs or
  unsustainable prices ?
• Value mappingThe critical strategic toolWhen
  refined, useful tactically
• Sensitivity analysis

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What if ?
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Pricing Analyses

• Share gains lossesShare loss gt price ??? All
  else constant
• Unusual marginsHigher price points, higher
  margins (generally) Favorable costs or
  unsustainable prices ?
• Value mappingThe critical strategic toolWhen
  refined, useful tactically
• Sensitivity analysisWorst case, breakeven, most
  likely

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Real Life Pricing

• Product proliferation
• Derivative models
• Managed allocations
• Meet competition quotes
• Price leaders / followers