Transcript No Slide Title

Pricing
Ken Homa
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
Gross to Net Pricing
LIST PRICE (GROSS PRICE)
FUNC’L
DISC.
PROMO
ALLOW.
INVOICE PRICE (WHOLESALE PRICE)
CASH
DISC
MKTG.
PROG.
NET PRICE
Volume Rebate
Coop Advertising
CHARACTERISTICS OF MARKETED SONITE BRANDS
Firm
A
E
I
O
U
Brand
SACK
SAND
SAPR
SASI
SEAL
SEXY
SEFA
SIGN
SILK
SOAP
SONG
SOLO
SUCH
SUMO
SUBU
from Practice Industry
Price
180
525
410
300
400
350
450
380
500
520
380
490
260
150
237
(Kg)
Weight
18
15
15
15
15
15
15
19
14
15
13
16
18
15
13
(Index)
Design
5
4
7
4
4
7
7
8
7
7
7
3
4
7
7
(Dm3)
Volume
70
35
35
35
60
40
70
60
50
40
33
47
40
70
75
(KHz)
Max Freq
15
20
50
20
40
40
35
20
35
45
45
50
25
10
48
(W)
Power
10
30
70
50
40
75
40
50
70
88
91
5
50
12
88
Cost
60
93
206
144
175
177
164
151
190
232
242
114
121
66
193
MARKSTRAT
• Retail price (MSRP)
channel mix
• Avg. retail price
channel margins
• Avg. selling price
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
“Right” Price ?
CHARACTERISTICS OF MARKETED SONITE BRANDS
Firm
A
E
I
O
U
Brand
SACK
SAND
SAPR
SASI
SEAL
SEXY
SEFA
SIGN
SILK
SOAP
SONG
SOLO
SUCH
SUMO
SUBU
from Practice Industry
Price
180
525
410
300
400
350
450
380
500
520
380
490
260
150
237
(Kg)
Weight
18
15
15
15
15
15
15
19
14
15
13
16
18
15
13
(Index)
Design
5
4
7
4
4
7
7
8
7
7
7
3
4
7
7
(Dm3)
Volume
70
35
35
35
60
40
70
60
50
40
33
47
40
70
75
(KHz)
Max Freq
15
20
50
20
40
40
35
20
35
45
45
50
25
10
48
(W)
Power
10
30
70
50
40
75
40
50
70
88
91
5
50
12
88
Cost
60
93
206
144
175
177
164
151
190
232
242
114
121
66
193
Pricing Analyses
• Share gains & losses
INFORMATION ON SONITE MARKET - SALES AND MARKET SHARES
Firm
A
Brand
SACK
SAND
SAPR
SASI
E
SEAL
SEXY
SEFA
I
SIGN
SILK
O
SOAP
SONG
SOLO
U
SUCH
SUMO
SUBU
Total Sonite market
Volume sold
Period 6 Period 7 Change
Units
Units
%
75,832
74,427
-1.90%
220,341 209,496
-4.90%
51,545
15,025 -70.80%
87,084
83,062
-4.60%
207,371 225,325
8.70%
27,502
35,687
29.80%
109,175 144,591
32.40%
38,688 120,000 210.20%
189,637 173,157
-8.70%
122,588 106,910 -12.80%
98,157
92,225
-6.00%
24,838
47,665
91.90%
240,230 160,779 -33.10%
70,816
48,589 -31.40%
0
67,454
1,578,801 1,604,392
1.60%
Share
%U
4.60%
13.10%
0.90%
5.20%
14.00%
2.20%
9.00%
7.50%
10.80%
6.70%
5.70%
3.00%
10.00%
3.00%
4.20%
100.00%
INFORMATION ON SONITE MARKET - SALES AND MARKET SHARES
Firm
A
Brand
SACK
SAND
SAPR
SASI
E
SEAL
SEXY
SEFA
I
SIGN
SILK
O
SOAP
SONG
SOLO
U
SUCH
SUMO
SUBU
Total Sonite market
Volume sold
Period 6 Period 7 Change
Units
Units
%
75,832
74,427
-1.90%
220,341 209,496
-4.90%
51,545
15,025 -70.80%
87,084
83,062
-4.60%
207,371 225,325
8.70%
27,502
35,687
29.80%
109,175 144,591
32.40%
38,688 120,000 210.20%
189,637 173,157
-8.70%
122,588 106,910 -12.80%
98,157
92,225
-6.00%
24,838
47,665
91.90%
240,230 160,779 -33.10%
70,816
48,589 -31.40%
0
67,454
1,578,801 1,604,392
1.60%
P7
Share
%U
4.60%
13.10%
0.90%
5.20%
14.00%
2.20%
9.00%
7.50%
10.80%
6.70%
5.70%
3.00%
10.00%
3.00%
4.20%
100.00%
If and only if: all else constant
P6
Share
%U
4.80%
13.96%
3.26%
5.52%
13.13%
1.74%
6.92%
2.45%
12.01%
7.76%
6.22%
1.57%
15.22%
4.49%
0.00%
100.00%
Share
Change
-0.20%
-0.86%
-2.36%
-0.32%
0.87%
0.46%
2.08%
5.05%
-1.21%
-1.06%
-0.52%
1.43%
-5.22%
-1.49%
4.20%
0
Price
180
525
410
300
400
350
450
380
500
520
380
490
260
150
237
Pricing Analyses
• Share gains & losses
Share loss => price ???
All else constant
• ‘Unusual’ margins
CHARACTERISTICS OF MARKETED SONITE BRANDS
Firm
A
E
I
O
U
Brand
SACK
SAND
SAPR
SASI
SEAL
SEXY
SEFA
SIGN
SILK
SOAP
SONG
SOLO
SUCH
SUMO
SUBU
Average
Price
180
525
410
300
400
350
450
380
500
520
380
490
260
150
237
369
Cost
60
93
206
144
175
177
164
151
190
232
242
114
121
66
193
155
Margin
120
432
204
156
225
173
286
229
310
288
138
376
139
84
44
214
% Margin
67%
82%
50%
52%
56%
49%
64%
60%
62%
55%
36%
77%
53%
56%
19%
58%
Brand
SAND
SOLO
SACK
SEFA
SILK
SIGN
SEAL
SUMO
SOAP
SUCH
SASI
SAPR
SEXY
SONG
SUBU
Average
Price
525
490
180
450
500
380
400
150
520
260
300
410
350
380
237
369
Cost
93
114
60
164
190
151
175
66
232
121
144
206
177
242
193
155
Margin
432
376
120
286
310
229
225
84
288
139
156
204
173
138
44
214
% Margin
82%
77%
67%
64%
62%
60%
56%
56%
55%
53%
52%
50%
49%
36%
19%
58%
Margin Analysis
600
500
Retail Price
400
300
200
100
0
0%
10%
20%
30%
40%
50%
Margin %
60%
70%
80%
90%
Pricing Analyses
• Share gains & losses
Share loss => price ???
All else constant
• ‘Unusual’ margins
Higher price points, higher margins (generally)
Favorable costs or unsustainable prices ?
• Value mapping
Value Map
High
P
R
I
C
E
VALUE SHORTFALL
VALUE SURPLUS
Low
Few
Many
BENEFITS
CHARACTERISTICS OF MARKETED SONITE BRANDS
Firm
A
E
I
O
U
Brand
SACK
SAND
SAPR
SASI
SEAL
SEXY
SEFA
SIGN
SILK
SOAP
SONG
SOLO
SUCH
SUMO
SUBU
from Practice Industry
Price
180
525
410
300
400
350
450
380
500
520
380
490
260
150
237
(Kg)
Weight
18
15
15
15
15
15
15
19
14
15
13
16
18
15
13
(Index)
Design
5
4
7
4
4
7
7
8
7
7
7
3
4
7
7
(Dm3)
Volume
70
35
35
35
60
40
70
60
50
40
33
47
40
70
75
(KHz)
Max Freq
15
20
50
20
40
40
35
20
35
45
45
50
25
10
48
(W)
Power
10
30
70
50
40
75
40
50
70
88
91
5
50
12
88
Cost
60
93
206
144
175
177
164
151
190
232
242
114
121
66
193
Price
Weight
Design
Volume
Max Freq
Power
Cost
Price
Weight
1.000
-0.210
1.000
-0.045
-0.207
-0.465
0.127
0.484
-0.516
0.211
-0.504
0.447
-0.543
Design
1.000
0.236
0.125
0.561
0.480
Volume
1.000
-0.237
-0.342
-0.340
Max Freq
1.000
0.556
0.761
Power
1.000
0.897
Cost
1.000
Regression Statistics
Multiple R
0.65
R Square
0.42
Adjusted R Square
0.10
Standard Error
115.33
Observations
15.00
ANOVA
df
Regression
Residual
Total
Intercept
Weight
Design
Volume
Max Freq
Power
SS
MS
F
F-test
5 86785.60 17357.12 1.304973 0.342604
9 119706.80 13300.76
14 206492.40
Coef
430.528
-1.597
18.516
-4.256
4.915
-1.820
StdErr
431.061
22.047
28.398
2.592
2.971
1.991
t Stat
0.999
-0.072
0.652
-1.642
1.655
-0.914
Obs #
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Predict
252.0
375.4
505.6
339.0
349.1
426.1
337.5
300.3
369.6
427.0
454.5
497.1
337.5
265.6
295.9
Actual
180
525
410
300
400
350
450
380
500
520
380
490
260
150
237
Value Map
550
500
450
Actual
400
350
300
250
200
150
100
100.0
150.0
200.0
250.0
300.0
350.0
Predicted
400.0
450.0
500.0
550.0
Value Map
550
500
450
Actual
400
350
300
250
200
150
100
100.0
150.0
200.0
250.0
300.0
350.0
Predicted
400.0
450.0
500.0
550.0
Value Map
550
500
Value Shortfall
450
Actual
400
350
300
Value Surplus
250
200
150
100
100.0
150.0
200.0
250.0
300.0
350.0
Predicted
400.0
450.0
500.0
550.0
Pricing Analyses
• Share gains & losses
Share loss => price ???
All else constant
• ‘Unusual’ margins
Higher price points, higher margins (generally)
Favorable costs or unsustainable prices ?
• Value mapping
The critical strategic tool
When refined, useful tactically
• Sensitivity analysis
What if ?
INFORMATION ON SONITE MARKET - SALES AND MARKET SHARES
Firm
A
Brand
SACK
SAND
SAPR
SASI
E
SEAL
SEXY
SEFA
I
SIGN
SILK
O
SOAP
SONG
SOLO
U
SUCH
SUMO
SUBU
Total Sonite market
Volume sold
Period 6 Period 7
U
U
75,832
74,427
220,341 209,496
51,545
15,025
87,084
83,062
207,371 225,325
27,502
35,687
109,175 144,591
38,688 120,000
189,637 173,157
122,588 106,910
98,157
92,225
24,838
47,665
240,230 160,779
70,816
48,589
0
67,454
1,578,801 1,604,392
Change
Share
%
%U
-1.90%
4.60%
-4.90%
13.10%
-70.80%
0.90%
-4.60%
5.20%
8.70%
14.00%
29.80%
2.20%
32.40%
9.00%
210.20%
7.50%
-8.70%
10.80%
-12.80%
6.70%
-6.00%
5.70%
91.90%
3.00%
-33.10%
10.00%
-31.40%
3.00%
4.20%
1.60% 100.00%
CHARACTERISTICS OF MARKETED SONITE BRANDS
Firm
A
E
I
O
U
Brand
SACK
SAND
SAPR
SASI
SEAL
SEXY
SEFA
SIGN
SILK
SOAP
SONG
SOLO
SUCH
SUMO
SUBU
from Practice Industry
Price
180
525
410
300
400
350
450
380
500
520
380
490
260
150
237
(Kg)
Weight
18
15
15
15
15
15
15
19
14
15
13
16
18
15
13
(Index)
Design
5
4
7
4
4
7
7
8
7
7
7
3
4
7
7
(Dm3)
Volume
70
35
35
35
60
40
70
60
50
40
33
47
40
70
75
(KHz)
Max Freq
15
20
50
20
40
40
35
20
35
45
45
50
25
10
48
(W)
Power
10
30
70
50
40
75
40
50
70
88
91
5
50
12
88
Cost
60
93
206
144
175
177
164
151
190
232
242
114
121
66
193
CONTRIBUTION BY BRAND
(SONITE BRANDS)
Unit
Sales
Units sold
U
Average retail price
$
Average selling price
$
Revenues
K$
Production
Units produced
U
Current unit transfer cost
$
Average unit transfer cost
$
Cost of goods sold
K$
Units in inventory
U
Inventory holding cost
K$
Inventory disposal loss
K$
Contribution before marketing K$
Marketing
Advertising expenditures
K$
Advertising research expenditures
K$
Sales force
K$
Contribution after marketing K$
Total
SEAL
SEXY
SEFA
405,603
407
270
109,665
225,325
394
262
58,986
35,687
341
220
7,845
144,591
444
296
42,834
505,300
127
-51,405
110,551
-1,374
-1,193
55,694
225,300
121
121
-27,171
4
0
0
31,815
120,000
165
165
-5,881
84,313
-1,112
-1,193
-341
160,000
125
127
-18,352
26,233
-262
0
24,220
-5,000
-600
-1,601
48,493
-500
-50
-809
30,455
-2,250
-50
-198
-2,838
-2,250
-500
-594
20,876
List Price
Channel Mix
Retail
Channel Margin
Rev/unit
Transfer cost
Margin
Base Case
$/unit
%
$400
100.0%
$6
1.5%
$394
98.5%
$132
33.5%
$262
100.0%
$121
46.2%
$141
53.8%
Price Reduction Sensitivity
List Price
Channel Mix
Retail
Channel Margin
Rev/unit
Transfer cost
Margin
Base Case
$/unit
%
$400
100.0%
$6
1.5%
$394
98.5%
$132
33.5%
$262
100.0%
$121
46.2%
$141
53.8%
Practice Industry : SEAL
$10 Lower
Retail
$390
$20 Lower
Retail
$380
$384
$374
$255
$121
$134
$249
$121
$128
Price Reduction Sensitivity
List Price
Channel Mix
Retail
Channel Margin
Rev/unit
Transfer cost
Margin
Base Case
$/unit
%
$400
100.0%
$6
1.5%
$394
98.5%
$132
33.5%
$262
100.0%
$121
46.2%
$141
53.8%
Practice Industry : SEAL
$10 Lower
Retail
$390
$20 Lower
Retail
$380
$384
$374
$255
$121
$134
$249
$121
$128
Worst Case: No Volume Gain
Base Volume
Share
Base Margin
Gain or Loss
225,325
14.0%
$31,770,825
225,325
225,325
14.0%
14.0%
$30,294,946 $28,819,068
($1,475,879) ($2,951,758)
Price Reduction Sensitivity
List Price
Channel Mix
Retail
Channel Margin
Rev/unit
Transfer cost
Margin
Base Volume
Base Margin
Breakeven Volume
Incr over Base Vol.
Incr % Base
New Share
Req'd Share Gain
Practice Industry : SEAL
Base Case
$/unit
%
$400
100.0%
$6
1.5%
$394
98.5%
$132
33.5%
$262
100.0%
$121
46.2%
$141
53.8%
225,325
$31,770,825
==>
$10 Lower
Retail
$390
$20 Lower
Retail
$380
$384
$374
$255
$121
$134
$249
$121
$128
$31,770,825 $31,770,825
236,302
10,977
4.9%
14.7%
0.7%
248,404
23,079
10.2%
15.5%
1.5%
Pricing Analyses
• Share gains & losses
Share loss => price ???
All else constant
• ‘Unusual’ margins
Higher price points, higher margins (generally)
Favorable costs or unsustainable prices ?
• Value mapping
The critical strategic tool
When refined, useful tactically
• Sensitivity analysis
Worst case, breakeven, most likely
Real Life Pricing
Product proliferation
Derivative models
“Managed” allocations
“Meet competition” quotes
Price leaders / followers