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SAP Price and Margin Management

(PMM)

by Vendavo An Introduction

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Outline

• What is “Price Management & Optimization”?

• What are the Monetary Benefits for doing this?

• Customer Successes – Case Studies

• Next Steps

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What is Price Management & Optimization?

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Price Management & Optimization Defined

PRICE MANAGEMENT & OPTIMIZATION is

the ability to understand the IMPACT OF PRICING on revenue & margin and MANAGE IT STRATEGICALLY over time to ensure fair prices for the value your company creates.

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• Gain Visibility into True Profitability

• Manage Retailers and Negotiations Better

• Set optimal reference pricing whilst

understanding retailer margin

Price Management & Optimization

helps CPG companies:

Why Price Management & Optimization

Matters in CPG

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Customer Success From Our Vault

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SAP PMM by Vendavo in Action Over >100 Global Companies Across Industries

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Vendavo Customers’ Benefits Realized Variation in value driven by processes implemented

Transformational

Customers achieve over

3% of revenue – typically

over 30% additional profits

Typical Customers

achieve over 1% of

revenue – typically over

10% additional profits

Pricing Analytics Only

Customers achieve at

least 0.5% of revenue

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

- 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Revenue Under Management

% o

f R

even

ue I

ncre

ase

$400M

$272M

$122M

Note: Bubbles represented are a sampling of Vendavo’s customers; bubble size indicates magnitude of additional profits per year.

Consistent customer results of 10 - 30% additional profit yearly.

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Solution

Address Freight Cost Exposures

Improve Margins on Slow-Moving

Products

Uncover products with excessive price variation

• Identify areas where freight charges didn’t recover cost

• Provided recommendations to improve freight cost recovery

• Identify slow-moving products eroding margins

• Recommended strategies to improve profitability

• Provided recommended prices to reduce variance and drive improved profitability

Implemented Vendavo Analytics

Global Specialty Chemical

and CPG Company

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Results

0.9% of Sales

Identified opportunities

worth an additional

to the bottom line

in 6 weeks.

Global Specialty Chemical

and CPG Company

But how?

WHAT IS A WATERFALL? And why do you need to

manage one?

#SAPFORUM FORUM List Price

You start out

with this.

Market Price

Regional, country, channel, price

control and segment adjustments

Invoice Price

Customer-specific discounts,

Formula price adjustments, etc.

Pocket Price

Cash discount,

volume rebate, etc.

Pocket Margin

COGS,

Cost to serve

You end up with this.

Defining YOUR Waterfall Exposes How You Currently Price

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…Enabling You to STOP Margin Leakage

So you can end up with more.

PRICE

MANAGEMENT &

OPTIMIZATION

helps you STOP MARGIN LEAKAGE

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Managing All Event Costs, Even the “Hidden” Ones

Consumer Goods Sector

Trade Promotion

Event Spend

Hidden “Cost to Serve”

Event Components

• Did you know?

• Hidden costs typically add 20%+ to total

promotional event spend and cost

• Are all of these costs being tracked and

allocated per each transaction?

• Are strategies in place that are reflective

of the customer segmentation?

• Are winning strategies being copied?

• Are losing strategies being eliminated?

• Are deals that fall outside of permissible

guidelines being automatically escalated

or rejected ensuring 100% compliance?

• If any answer is: “No”

• Your deal margin is being eroded

• Remember the 1% rule

• Adds or loses 12.3% in operating margin

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• Profit opportunity

identification, sizing,

and tracking

• Root cause analysis

• Actionable insights

and analysis

• Views for users of

all types

• Manage base prices,

list prices

• Set & manage deal

price & margin

guidance policies

• Manage approval

workflow rules

• Plan and analyze

strategic price moves

Negotiate better customer-specific pricing with

confidence from insights and embedded analytics

Uncover opportunities to improve profits

Rapidly transition from static to dynamic pricing

Align sales behavior to corporate objectives

SAP PMM Pricing Suite Increase Revenue & Profits with a Complete Pricing Lifecycle

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Outline

• What is “Price Management & Optimization”?

• What are the Monetary Benefits for doing this?

• Customer Successes – Case Studies

• Next Steps

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High Value Pricing Opportunities in CPG % of Achievable Revenue

Low End High End

1. Improved Deal Management: Understand line-item and overall profitability when negotiating annual agreements/contracts

Understand margin impact of cost-to-serve elements

Optimized price guidance to drive better deals

Understand impact of trade promotion spend on deal profitability (especially fixed vs. variable spend)

Consistent process to ensure segment price differentials do not create gray markets

0.5% 1.0%

2. Improved Management of Trade Promotion Spend Understand impact on profitability of products/product lines, customers, regions, markets, etc.

Understand historic impact of trade spend on volume lift

Management of trade spend to drive desired channel behavior and/or branding (i.e. end-cap displays, ads, etc.)

1.0% 2.0%

3. Better ability to rapidly adjust prices based on cost and/or competitive

retail price changes Efficiently manage pricing of multiple SKU’s in SKU groups (i.e. SKU’s that are same except for color, flavor, etc.)

Capture and report competitive price (retail) data and use in price setting

Execute price changes within narrow windows of opportunity (i.e. first Best Food Day of month, annual contract

negotiation pre-scribed dates, etc.)

Manage prices and value proposition effectively in a world of competitors relentlessly focused on low-cost

manufacturing and corresponding price reductions

Structured rapid price list generation and publication

0. 5% 1.0%

4. Reduce margin leakage Adherence to structured segment-driven pricing and discount guidance for negotiated deals

Adherence to appropriate price list for pricing to small customers

Full awareness of cost-to-serve (including packaging, freight/delivery for DSD vs. DC, order size and frequency, value-

added services [labeling, palletizing], “customer” customization [color, flavor, package design], payment terms, etc.)

Full visibility to trade promotion spend as part of price waterfall and price negotiations

Reduction of rogue or “one off” deals/sales

Clear understanding of margin leakage by segment, customer, product

Effect “fix or flush” approach

0.25% 0.5%

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High Value Pricing Opportunities in CPG

% of Achievable Revenue

Low End High End

5. Improve cost recovery Awareness of margin impact of serving DSD (Direct Store Delivery) vs. DC’s (Distribution Centers)

Impact of packaging costs and fluctuations in such costs

Payment terms and payment experience impact on margin

Understanding of total landed cost as well as “peel-away” of costs back to manufacturing site

Impact of inbound and outbound fuel surcharges

Ability to pass such costs/charges on to customer

0.5% 1.0%

6. Improve product price life-cycle price management Use of price and trade promotion spend to drive sales of new products

“new and improved for same price”

Combo deals/discounts to sell new product in conjunction with established/mature product

Effective use of price to drive volume of older, declining products (that may be more profitable than new products)

Strategic management of own product cannibalization via price and trade promotion spend

Optimized sales mix of product line

0.25% 0.5%

7. Improved segment-level pricing Utilize knowledge of channel/retailer margin requirements and POS (Point-of-Sale/retail price) data to optimize price to

segment

Capture value of added cost-to-serve smaller customers (i.e. payment terms)

Incorporate behavioral segmentation, in addition to channel/“retailer-type” segmentation

1.0% 1.75%

Expected Realizable Value* *Percentages do not add up due to overlapping effect of pricing imperatives

1.0% 3.0%

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Outline

• What is “Price Management & Optimization”?

• What are the Monetary Benefits for doing this?

• Next Steps

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Rapid-Implementation Service for

SAP Price and Margin Management by Vendavo (Pricing Dashboard and Analytics)

Easy to Start, Fast Return on Investment

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Fastest time-to-value and low risk

Fixed price service offering

Includes license to SAP Price and Margin Management, pricing dashboard and analytics

Foundation of your price management journey

Expandable to SAP Price and Margin Management

Proven RDS implementation methodology by SAP Consulting

Easy to Start, Fast Return on Investment

*for up to €500M in business unit revenue

As Low as:

190K*

Euro

Benefit: 0.5 – 1.5% Return on Sales (ROS) Every Year!

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