麦肯锡-案例库Going-for-high-price.ppt

001107MU2_182305_027_v3,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,*Footnote,Quelle:Sources,Unit of measure,BACK-UP,Legend,Legend,Legend,单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,*,PD Paper,November 2000,Go for a Higher Price Incumbents Race for Competition,Bernhard Schmidt,BE,Andreas Florissen,DU Boris Maurer,BE,Axel Flasbarth,BE,Achim Hausen,CG,Thomas Vahlenkamp,DU,0,Source:McKinsey,INDUSTRIES WHERE GO FOR A HIGHER PRICECAN BE APPLIED,Oligopolistic markets with new entrants and/or strong competition:,Retailing,Banking,Insurance,Airlines,Fast-growing industries fighting for market share:,Mobile operators,Internet service providers,E-commerce,Newly deregulated industries:,Telecommunication,Utility,Transportation,Competition perceived as high,New entrants with new technologies,especially in banking(e.g.,online brokerage),Traditionally low/negative margins in retailing,Flawed business models that lead to customers with negative value,New technologies tend to lead to lower prices(price transparency,auctions,etc.),No skimming for new technologies(e.g.,DSL flat rate by DTAG),Main issues,Destructive price wars,Proactive price cuts,Focus ofpresentation,1,Newly deregulated industries:,9 cent/min,The right price is always higher than you think,Price difference to competitors,The price war on Germanys food retail market has intensified since the entry of Wal Mart Stores Inc.,Large price decline despite small actual switching rates,PRICE WAR IN TELECOMMUNICATIONS FINLAND,Fear of losing even a single customer due to un-differentiated overestimation of customer value,Source:McKinsey:McKinsey research,New entrant,FHE(Zeus AG),Hamburg,New technologies tend to lead to lower prices(price transparency,auctions,etc.,Cost to serve,INCUMBENTS HIT IN PRICE WARS,EXAMPLES GERMANY:PRIVATE CUSTOMER,HOW INCUMBENTS ARE BOUND TO FEEL,2,Value contribution from customer relationship,If incumbent sets his price above competitors price,customers will switch,HOW INCUMBENTS ARE BOUND TO FEEL,Define growth areas,Family Tariffs(4000 kWh),Cost to serve,Cost to serve,Achim Hausen,CG,Source:McKinsey,()operating profits fell by 15 per cent()This was due to the fall in the price of electricity,caused by the deregulation of the sector.,PRICE WAR IN TELECOMMUNICATIONS FINLAND,New technologies tend to lead to lower prices(price transparency,auctions,etc.,Source:McKinsey,The price is higher than you think!,Large price decline despite small actual switching rates,9 cent/min,Incumbent should shed 20%of customers during first year of competition,AOL TO UNVEIL FLAT RATES IN GERMANY,UK,The Wall Street Journal Europe,06/20/2000,Competition has hit us hard,()Electricity prices for industrial customers(in Germany)have fallen by 30 to 50 percent,private customers are pleased with bills 15 to 20 percent lower,FAZ,11/01/2000,PRICE WAR LOWERS TURN-OVER AT NECKARWERKE STUTTGART AG,Sddeutsche Zeitung,05/08/2000,THE NET WAR IN EUROPE,Business Week,06/19/2000,PRICE WAR ON GERMAN FOOD RETAIL MARKET BECOMES FIERCER,The price war on Germanys food retail market has intensified since the entry of Wal Mart Stores Inc.,the U.S.retail giant,onto the market(),Die Welt,04/28/2000,AT,the,can,e.g.,RWE:Electricity Prices Have Hit Rock Bottom,()operating profits fell by 15 per cent()This was due to the fall in the price of electricity,caused by the deregulation of the sector.,Die Welt,07/04/2000,Rewe Sees No End to Price War,()the so-called retail price war in Germany,in which Rewe has undeniably been one of the key players,severely dented group operating profits,which declined by DM 100 m to DM 500 m(),Eurofood,03/30/2000,Deutsche Telekom hardly earns money in its operational business,()Shrinking profits()are due tohigh marketing cost for acquiring new customers()and the price war in theconventional telephone network.,FTD,11/01/2000,Pricing turns into a science,How a company prices products and services is increasingly acknowledged as an important strategic tool affecting profit,growth and shareholder value(),FT,10/31/2000,INCUMBENTS HIT IN PRICE WARS,Source:Miscellaneous newspapers,McKinsey,3,CHALLENGES FOR INCUMBENTS IN DEREGULATED MARKETS,Source:McKinsey,Incumbent,Pricing,Avoid price wars,Go for a higher price,Organization,Build up new skills,Create a flexible,adaptive organization,Costs,Cut costs,Increase your efficiency,Regulation,Fight for regulatory freedom,Try to raise entry barriers,Growth,Build up new businesses,Prepare for M&A,Pricing,Avoid price wars,Go for a higher price,4,PRICE WAR IN TELECOMMUNICATIONS FINLAND,Time,New entrant,Sonera(incumbent),Price,Day 1,Day 2,Day 3,-50 to-70%,price decline within several,days,Market share Sonera,(LAND Island),Percent,40,50,60,100,Proactive,price cutting,Competitor undercuts incum-bents price,Next panic reaction,*Population=20,000,Source:McKinsey Research,60%loss in market share,5,PRICE CUTS AFTER DEREGULATION POWER SUPPLY SWEDEN,Source:McKinsey,Average pricesSEK/kWh,Large customers,Private customers,Spot market price approx.14 SEK/kWh,SME,1998,1999,1998,1999,1998,1999,-6%,-19%,-35%,Large price decline despite s,mall actual switching rates,15,6,MISINTERPRETATION OF KEY INFLUENCING FACTORS,Source:McKinsey,Hypothesis,Price cuts are too aggressive most of the time,Why?,Competitors price reactions are not taken into consideration;an initial price reduction triggers an avalanche of self-destructive price cuts,Competitors price,1,Overestimation of customer switching rates,Switching rate,2,Fear of losing even a single customer due to un-differentiated overestimation of customer value,Volume-oriented,not value-oriented,Customer value,3,No idea how cost to serve(own,competitors)effect pricing schemes,Cost to serve,4,7,WHAT IS THE RIGHT PRICE?,Source:McKinsey,How high?,Even higher!,The price is higher than you think!,8,?,WHAT IS THE RIGHT PRICE?,EXAMPLES GERMANY:PRIVATE CUSTOMER,In your opinion,how high should.,an incumbent telecommunications,provider(peak time,long-distance calls),an incumbent postal company(local mail)and,an incumbent utility,Source:McKinsey,Attackers price,9 cent/min,0.40/letter,9 cent/kWh*,Actual price set by incumbent after first price decrease,12-18 cent/min,0.55/letter,11 cent/kWh,Optimal model price,16,cent/min*,0.75-0.90,/letter*,16,cent/kWh,*,Estimates for variable cost,customer value *Net price,below variable cost,set its price at the,beginning of deregulation?,9,PRICING AS KEY FOR SHAREHOLDER-VALUE CREATION,Source:McKinsey,Strategicdilemma,Two levers for shareholder-value,To be solved with a,profitable growth,pricing strategy:,conscious trade-off between market share and profit,Strategicdilemma,Profitability,Sales,Cost,Growth,Gain/keep market share,Growth through innovation/new businesses,Growth through M&A,10,Marginal contribution,Assumptions,No market participant,will,set prices below cost,to,serve,equilibrium with equilibrium prices for new entrant and incumbent,If incumbent sets his price above competitors price,customers,will,switch,The loss of sales depends on switching rates,The marginal contribution equals price per unit less cost to serve,Competitor enters the market and sets price,Use optimization model to calculate optimal price for incumbent,OPTIMAL BEHAVIOR FOR INCUMBENTS,Source:McKinsey,Sales,CONCEPTUAL,Competitors price,Switching rates,Customer value,Cost to serve,The incumbents optimal price maximizes his marginal contribution,The incumbents price is above competitors prices,Optimal price for incumbent,Total marginal contribution,Marginal contribution,Cost to serve,Price of new entrant,Competitors price,Switching rates,Cost to serve,Customer value,The customer value consists of future price premiums,cross-selling potential and the costs for reaquiring lost customers,11,PRICE COMPARISON PRIVATE CUSTOMERS UTILITY GERMANY,Source:Capital 3/2000,McKinsey,1,Relevant tariff,How to select the relevant competitors price,Only consider price of competitor who is most relevant to customers,i.e.,Who is well known,Who attracts most of the switchers,The relevant price is not necessarily the lowest,Family Tariffs(4000 kWh),Utility,1.2000,Minden,2.Abas Energie,Hamburg,3.Vossnet,Bremen,4.FHE(Zeus AG),Hamburg,5.berlandwerke Gro-Gerau,6.Energieversorgung Offenbach AG,7.Yello Strom GmbH,8.Energie AG Iserlohn,828,920,923,948,967,984,988,996,Annual Price,DM,12,DEVELOPMENT OF SWITCHING RATES,Health insurer,Telecommunications(total market by minutes),Preselection:telecommunications,Building insurance,UK gas market,1.78,0.92,0.27,0.34,0,25,0.335,0.74,1.71,1.90,0.083,0.087,0.89,0.26,Switching rates are never higher than 2%per 5%price premium,Switching rates rise in the first year after liberali-zation and fall in the following years,Switching rate,Percent per 5%price difference,Time after liberalization,4,1 year,2 years,3 years,2,3,1,Source:McKinsey,:McKinsey research,2,13,CUSTOMER VALUE,Customer portfolio as a percentage of actual number,(Today),100,Time,Years,1,2,3,4,5,NPV of customer relationship,Price difference to competitors,Incumbents price,Optimal pricedifference,Attackers price,Premium of incumbent vs.attacker,Value contribution from customer relationship,Time,Years,1,2,3,4,5,Dis-count,Trend depends on switchingrate,3,Source:McKinsey,CONCEPTUAL,Series of valuecontribution includes cross-selling potentials and avoi-dance of acquisition costs,14,Competitors cost to serve are especially important as long as the incumbent cannot observe competitors offers in a young market,4,COST TO SERVE FROM SALES PERSPECTIVE,Source:McKinsey,Influence on pricing of incumbent,Direct,Own cost to serve are of little relevance for optimal pricing,since price cost to serve,Indirect,Competitors prices are of major importance for own optimal pricing;they can be derived and anticipated from their cost to serve,15,Actual pricing decisions can be based on predefined rules(conditional pricing),4,LESSONS LEARNED FOR INCUMBENT CLIENTS,Source:McKinsey,The right price is always higher than you think,1,In the absence of sophis-ticated market information systems,simple target rules can be derived,2,Act only if competitors under-cut your prices for more than x%or if more than y%of your market share is lost,The incumbent organization will nevertheless not follow these simple rules unless maximum effort is put into reliable feedback from the market,3,The most sophisticated pricing scheme cannot prevent the incumbents core business from most probably losing value,Define growth areas,Get talents on board,Re-direct investment streams,Monthly reporting to the board(best practice:bi-weekly update)on deve-lopment of market share,Incumbent should shed 20%of customers during first year of competition,Add 20%to your expectations,16,THE END,17,