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ZF: Value-Based Pricing is an absolute must
As part of the study on pricing processes in the automotive supplier industry, Prof. Dr. Hans-Christian Riekhof conducted an interview with Ronald Schreiber, Regional Pricing Manager DACH Services at ZF.
Professor Riekhof: Are there research results from our study on pricing processes at automotive suppliers in 2017 that particularly caught your eye and that you did not expect?
Ronald Schreiber: For me, it is somewhat shocking that the internal exchange of experience with other business units on pricing at the OEMs is so poorly developed. We can also see this to some extent at ZF. It would make a lot of sense to exchange ideas more intensively here and to discuss strategic questions across business units. It was also surprising to me that for many suppliers, the written documentation of a pricing strategy is not at the top of the priority list, although this would be extremely important. According to the study, value-based pricing has a rather low importance in our industry, I think that concrete opportunities are being missed here. We have this clearly on the agenda for ZF. And many supplier companies today lack a pricing department or a pricing manager, although this is considered quite sensible. We have had our own pricing department at ZF since 2002.
Riekhof: What changes is pricing undergoing in your industry? Is there a certain dynamic of change or are prices being determined today in the same way as ten years ago?
Schreiber: In the last ten years, a lot has happened in the automotive supplier industry in terms of pricing. Today, pricing has a much higher importance, the management attention for this topic has really increased. In addition, we are much better positioned and networked today in terms of data. And at ZF we have practical pricing and price analytics tools to support day-to-day business.
Riekhof: What opportunities do you see for value-based pricing?
Schreiber: For us, this is an absolute must in order to maintain the competitive advantage. To this end, it is important to define a global pricing strategy together with all interface departments in the ZF Aftermarket (product management, cost engineering, sales and pricing) in order to maximize the price point with the help of market intelligence and value-creating product attributes for all business channels.
Riekhof: Are there tools and procedures in your company in the context of pricing management that you would describe as groundbreaking? Or does your pricing follow – for good reason – rather industry-standard rules and customs?
Schreiber: We have worked intensively on the development of our own pricing tool and the linking of important material and product attributes in the pricing process. In addition, we have taken care of a better understanding and detailed knowledge of our company’s pricing strategy across all departments and locations. This has certainly contributed a lot to the professionalization of pricing at ZF.
Riekhof: To what extent have you already exploited the value creation potentials lying in professional pricing in your company?
Schreiber: I would cautiously estimate that we have so far exploited 40% of the pricing potentials. With the help of the value-based pricing approach, we can probably exploit up to 65% of the potentials in the future, so there is still a lot in it.
Business Unit VW Group at Leoni: Dynamics of Change in Pricing
As part of the study on pricing processes in the automotive supplier industry, Prof. Dr. Hans-Christian Riekhof conducted an interview with Peter Becker, Head of Business Unit VW Group at Leoni.
Professor Riekhof: Are there research results from our study on pricing processes at automotive suppliers in 2017 that particularly caught your eye and that you did not expect?
Peter Becker: No, although the result is quite sobering, the study provides a very clear and, in my view, honest picture of the current state of the industry in terms of pricing.
Riekhof: What changes is pricing in your industry undergoing? Is there a certain dynamic of change or are prices established today in the same way as ten years ago?
Becker: From my point of view, there is a decent dynamic of change. Changes are slow to take effect, but are driven by the industry’s desire to increase the professionalism and profitability of business transactions.
Riekhof: The automotive industry is currently undergoing a profound change towards the expansion of electromobility in its various forms. Does this also change the framework conditions for strategic pricing? Will it become easier for suppliers to differentiate themselves in their value contribution, so that price pressure may also decrease?
Becker: Yes, I see it that way. The change in this time is very fast. Furthermore, industry partners are more dependent than ever on mastering the challenges together. Creating value and offering new services also allows differentiation with corresponding positive effects on pricing.
Riekhof: What opportunities do you see for value-based pricing (Value-Based Pricing) at Leoni?
Becker: The chances for value-based pricing at Leoni are good. Appropriate measures are slowly being introduced into the company. However, your study’s statement that the focus on profit improvement measures mentioned still enjoys higher priority today is correct.
Riekhof: Are there tools and procedures in your company as part of pricing management that you would describe as groundbreaking? Or does your pricing follow industry-standard rules and practices for good reason?
Becker: Personally, I do believe that the “industry-standard” approach needs to be questioned in one place or another. Innovative ideas and above all focused approaches in companies in terms of pricing can create new tools for pricing. We at LEONI are doing this, and under the program headline “Sales Excellence” several concrete approaches are bundled.
Riekhof: Leoni has very different business areas that operate their market segments with high autonomy. Are there processes in your company to define cross-divisional pricing strategies for certain customer and market segments?
Becker: Yes, there are very different business areas at LEONI. However, where the mechanisms at the customer are the same, e.g. in our business area WSD of LEONI (on-board networks), an approach is feasible to optimize processes across divisions and customers, and we are working on it.
Riekhof: To what extent have you already exploited the value creation potentials in your company that lie in professional pricing?
Becker: On a scale of 1 to 10, I would – as of today – settle for 4. So there is still a lot to do. But we are moving in the right, value-creating direction!
