| Abstract: | Emerson Electric Co. is a diversified manufacturer with $14 billion in sales. The Emerson Price Improvement Team is an internal consulting group that serves the 60+ Emerson divisions. The team's mission is to help divisions achieve their financial and market objectives by providing pricing skills, tools, and project assistance that improve a division's pricing practices. This paper discusses an implementation of the Price Improvement Team's New Product Pricing Process at Fisher-Rosemount, a business unit of Emerson. Fisher-Rosemount is the world's leading supplier of process control systems, and measurement instrumentation. One of the eight Fisher-Rosemount divisions planned to introduce a new process sensor at a price of $2,650. After completing the New Product Pricing Process, Fisher-Rosemount increased the planned sensor price 19%, introducing it at a price of $3,150, resulting in a fifth-year operating profit improvement of $11 million. The New Product Pricing Process enabled the division to gain a detailed understanding of customer perceptions of product value; determine a key design specification for the new product; reduce cannibalization of its existing and highly profitable sensor by positioning the new product to optimize the total product portfolio; predict unit sales, revenue, and profitability for a range of market scenarios; and confidently set the right product price. Achieving optimal revenue and profitability, in a manner consistent with the company's business strategy, is a goal of the process. Equally important, the process ensures that customers receive fair value-based pricing while enabling the supplying company to maintain overall industry price equilibrium. |
