In our March webinar, Stephan Liozu, CEO of Ardex Americas, talked with us about how his mid-sized manufacturing company transitioned from a cost-based to a value-based pricing strategy. Click here to watch the recording or to download a copy of the slide deck. This is part one in a two-part series in which we review some of the questions which came from the audience.
Q: Your 5C Model (Champions, Change, Capabilities, Confidence, Center-led) for organizational mobilization for pricing is going to look a little bit different at every company. How did this look at Ardex?
Stephan: When I started my PhD work three years ago, Ardex was kind of a lab to experiment on the model. Really every C is used. At the end of the webinar, I showed a slide recapping the 5C Model with the Ardex story (see Figure 1 below).
But if you look at this transformational journey at Ardex on the Pricing Capability Grid™ (see Figure 2 below), there are two major axes. On the vertical axis is the pricing orientation, which addresses the question: How do you set price, based on cost, competition, and value? The horizontal axis is the price realization, which addresses your discipline in pricing: Do you have formalized processes? Do you have strong discipline in pricing to capture your value out in the market through price?
You can see that Ardex progressed along the price realization axis before focusing on pricing orientation. Each company has to start somewhere; we decided to invest a lot in pricing processes before we actually discussed the orientation, but the journey will take a different shape for every company, with different curves on the Pricing Capability Grid™. You really want to aim to be at a very strong realization with value-based pricing, and that's where we hope to be in 2014. So you can see it's a six year journey. There's no rush. Pace yourself and make it right. Make it relevant for customers, and relevant internally for the organization.
Q: How have your channels responded to this journey, this value-based pricing transformation that you're taking them through?
Stephan: It depends how you position it. This is not a pricing project for them. We tell them, “We want to make you successful so we are going to train you on how to sell our very technical, high-priced products. We're going to train you on the value messaging and the value story, so that you can go out and sell to your customers.” We actually have distributors that do this very well and we are meeting with them. We have to educate our trade partners to have the same message, to be in alignment with our messages down the value chain. Obviously, sometimes we have to do a lot more messaging to them, but we do that very well now with the dollarization process*. The beauty of value-based pricing is that you create more transparency by promoting your value drivers and explaining why there is a differential in value. Customers like it because you satisfy their need to understand the price. If you just give them a high price without explaining anything, they'll get frustrated. So far, we've only received positive feedback on these training sessions and our innovation in all the products we launch.
Q: Really what you're describing is building that confidence in the channels, and in the customers as well.
Stephan: Yes, exactly.
*More on this topic to follow in part two of this two-part series with Stephan.