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. To Watch On-Demand visit: leveragepoint.com/resources/
Q: Can you clarify your definition of “dollarization”?
Stephan: There’s a book called The Dollarization Discipline by Jeff Fox (found here on Amazon), which I give to every distributor and contractor that visits us. Dollarization is the monetization of differential value. So if you look at the EVE, the Economic Value Estimation, you dollarize or monetize the differential value. You take the value driver, measure your differential value, and then transfer that into the next step of the EVE.
Q: How are you measuring your success? What’s the ROI that you’ve received? What are the different KPIs that you’ve used, other than ROI, to determine whether you’re moving in the right direction?
Stephan: The number one success factor is the transparency of our pricing strategy, in terms of customer complaints about not understanding our pricing models. Selling the value story and making it very clear why a customer pays a specific price creates satisfaction with that price. It builds credibility with your customers as well. If you look at the tangible measurement, because it’s a pragmatic internalization of value-based pricing, we can measure incremental pricing with pilot programs. The way we used to do pricing, and the way we do it today, is completely different. Sometimes our prices are lower, but most of the time our prices are higher. That incremental price capture can be measured as incremental ROI. I would recommend reading my blog post on the LeveragePoint blog and in the Professional Pricing Society journal for more on this. It’s important to sell this program internally to your management, and have a value-tracking mechanism (incremental profit, incremental innovation power, pricing satisfaction, etc.) specifically for value-based pricing expenses.
Q: You talked a little about how customers and the channel are responding to your transformation, but how is your competition responding?
Stephan: We are the price leader in the market. We are not always the highest priced, but are usually the first to market for price increases and price management. We do an excellent job with value management, as we do face some cost-cutting competitors and some price-followers. But it is very dynamic. We are still going through a recession in the construction industry in the US. The bottom line is that our competitors make their decisions independently on whether to attack us. I don’t think any changes are related to us being more value oriented, it’s simply how they run their business. For Ardex, we focus on bringing to market innovative products that are priced at the right level based on the value drivers and value propositions. We do value maps which are very dynamic, and sometimes we are forced to respond and adapt a specific pricing program. But because we dollarize every single product, we know the thresholds. The LeveragePoint platform and the dollarization process help you react in a more intelligent manner. You know exactly what competition is doing, and whether you are willing to follow or not, and how much you are willing to give back. It creates a more scientific process internally for you to respond.