Combating Downward Pricing Pressures with a Value-Based Approach
Challenge: A Tier 1 Automotive Supplier has historically enjoyed premium pricing for its products, but in recent years has felt heavy downward pricing pressure due to market dynamics, competitor tactics, and pressure from OEM customers. The company consulted Blue Canyon in search of a more strategic approach to pricing based on the principles of value-based pricing.
Assessment: The Blue Canyon team confirmed the marketplace challenges, and identified customer-specific dynamics that would impact the pricing strategy approach. An analysis of the clients current pricing and profitability performance showed specific scenarios where the client had priced successfully, but also demonstrated that there was not a consistent pricing strategy. In-depth marketplace discussions revealed what customers valued and how they considered the value of the suppliers’ offerings, as well determined how the client could identify opportunities where it had greater pricing leverage.
Strategic Solution: Blue Canyon developed a set of strategic pricing guidelines and tools to help the supplier execute a value-based pricing approach, including a framework to guide how to price specific opportunities and a methodology for how to estimate value provided to the customer. Blue Canyon recommended that the client begin to change the conversation with the customer and persuade them to consider value differences, as opposed to just cost differences.
Result: Given the strategy and new tools, the supplier is expected to be able to better defend the value of their solutions and improve the profitability of their offerings. Moving forward, a consistent pricing strategy will assure the supplier can continue to hit their aggressive growth and profitability goals.