I was asked if could explain the value of inter-regional deltas a little more or at least give an example. It’s a metric which lots of folks don’t get, and so they dismiss it, which is great for me because when they do that, their pricing is automatically “sub-optimized” and so needs someone to come along and “optimize” it for them – Pricing Problems? Better Call Paul 281-782-9821.
While I have a lot of great negative examples of things that have gone wrong when people have ignored and/or been blissfully unaware of inter-regional deltas, I thought I’d start with a couple of positive ones in this blog. So imagine these two real cases (numbers, countries changed):
a) a guy on the US bid desk calls me up: could I send him the latest inter-regional deltas by product and also send the overall trend for the past couple of years? Sure. He is US-based but bidding on a global contract for a multi-national based in Germany and thought it might give him a better idea of how to discount in Europe relative to the US. You know, if our list prices are (say 5%) higher in Europe than the US then he could discount (say 3%) more in Europe, and – given the same product mix, etc. – still get the same margins. That’s right. He had been paying attention. But if the competitors’ inter-regional delta was greater and much higher in Europe than we were (say 15%), then they would have to increase their discount in Europe by a much a bigger amount than we would (say 10%) to be competitive. But they would have to know their inter-regional deltas to realize that they had to do this. Right. So could I confirm that our major competitor was still unaware of this inter-regional delta stuff? I could: their inter-regional deltas were still inconsistent and showed that they were clearly not monitoring it. I could hear the wheels turning in his mind. I could sense the opposition were already being out-maneuvered. We won the contract. Imagine that in reverse: your competitor has worked out which metrics you are ignoring and is playing the game in the full knowledge that he knows what you’re ignoring and funnily enough you lose the bid.
b) a business unit leadership meeting at their QBR sitting around and reviewing their competitors’ pricing. Not their own pricing. Nor even the competitive premiums between their pricing and their competitors’. Just the competitor’s pricing, viewed through the lens of inter-regional deltas. This was sort of fun because we knew they didn’t monitor inter-regional deltas. It’s also sort of creepy when you start to realize that you understand more about your competitors’ pricing than they do themselves. So the questions began. So six months ago their lowest pricing was in China and now it is Canada? Yes. And before China it was the US. Yes. And their current up-sell strategy in APJ is structured completely different to and inconsistent with US & Europe. Yes. Why would they do that? Well, we know that they are not doing it deliberately. It’s just a consequence of neglect. Now, if we just …….. so you can imagine how the conversation goes. Or maybe you can’t. Also we knew we were having a discussion about our competitors’ pricing that we knew they weren’t having about ours. Precious.
So here’s a metric which most people on the planet are familiar with and use – more on that in a following blog – and yet some either ignore it through blissful ignorance or think they can choose to ignore it, presumably because they think they know better. So, knock yourselves out. Ignore it at your leisure. As the pulmonologist said when he was asked why he was at the cigar smokers’ convention, “These people are meant to be intelligent, they’ve been warned: but it’s great for business.”
