The Future of the BOPP Industry

Innovation in pricing

The profitability of a company is largely depending on pricing; in this article we intend to propose how to further maximize its impact by adopting VBP (Value Based Pricing) and promoting a tailored offering for the specific customer.

In mature markets the commoditization and the customer power drive prices setting to competition –based or cost-based approach. The fierce battle among suppliers is there to stay and the solution requires an innovation pricing approach instead of a merely cost cutting exercise.

The first step is to focus on “Pricing process” with the same intensity as done for the other company’s “Critical Processes”.

It is a fact that companies invest huge amount of money in “Product Innovation” and minor, financial and organization, resources in innovating the pricing process.

This is wrong, pricing is the most powerful lever of profitability and furthermore can be a source of a competitive advantage.

In fact, it is well known that the pricing based on “Cost Plus” or merely competition activity does not respond to the current market challenges.

Most of our direct and indirect customers are innovating their business model and strategy, we cannot ignore it.

Do we know? Are we aware of the new trends? Do we really know the actual needs and challenges that our customers face?

It is sad to acknowledge how many companies continue on proposing simply their products instead of proposing how they could solve the customer real critical business issues.

We all should acknowledge new market scenarios and propose a collaborative and innovative “New Value based Pricing” instead of the old fashion antagonistic “Cost Plus” Pricing.

Value Based Pricing implies that Prices setting is depending on the Value delivered, to the specific customer, solving its real and recognized business issues.

This will begin with customer and vendor to identify and agree on the critical issues, the relative urgency and cost of no action. This translates in prices strictly depending on perceived value by each single customer and not standard ones.

In order to better explain VBP philosophy we propose to refer to its two sub processes: creating value and extracting value.

Indeed, the wisdom that the supplier strategic purpose is to create value for their customers is well understood. What missing is how the value created can be divided between the customer and the supplier.

The move from “Cost Plus” to “Value Based” is a major initiative:

-       takes up to 24 months of intense change management process

-       requires training and the development of new Sales & Mkt capabilities

-       sets up a price management team, appoint a senior VP pricing

-       invests in A.I. (Artificial Intelligence) infrastructure

The ‘’Prize’’ is significant, could reach up to 20% margins up lift.  Furthermore build a competitive advantage not easy to copy by most of the competitors.

The transformation initiative will impact mainly the Sales and Mkt organization and require the involvement of Senior Management up to the CEO.

The “Value Based” pricing will become an essential element of the business model and company strategy. The company that will drive and implement successfully the “VPB” initiative will acquire the ability to capture part of the value they deserve. It is not luck but hard work, discipline, rigorous implementation process and a basket of critical skills and possibly specific core competences.

At occasion of the training session we will develop a step-by-step implementation process.

? Pricing:Misconceptions & Reality

 a. It’s impossible to change Industry pricing practices

  1. It is worth to try not once but hundred times, others did it

  b. Believe in Lock -In and not in Lock-On

  2. Clients do not like to be in a cage

  c. Costs are the only real basis for price setting

  3. Wrong , it is a way to leave money on the table

  d. Value based Pricing would not work

  4. Many successful companies have adopted it

  e. Prices cannot be timely changed in line with demand

  5. False, it is already done and can be done more effectively

   f. Customers are only price sensitive

   6. False, if you help them to resolve actual business issues

   g. Price positioning is not impacted by Service & Quality

   7. False, Service & Quality create value for customers

    h. Only market share leads to high profits

    8. False, Pricing is a more effective lever

    i. Innovation in pricing means only changing prices

    9. False, is about creating Value and impact the entire company