University for Applied Sciences, Kiel / Germany
Department of Mechanical Engineering, International Business Engineering
and Technology (IBET)

Pricing strategies and price politics in the key account enterprise business
- An analysis in reference of the company HP in consideration to the merge with Compaq -

Master thesis

Subject: Sales & Marketing

Author: Christian Lang, Matr. Nr. 900362
Project timeframe: 1st August – 2nd December 2002
Submission date: 5th December 2002

- Preamble -

This thesis was done during my placement in the HP PSG Sales Development Department, Grenoble / France. This work accrued in addition to my work as the Sales Development Junior for Germany responsible for the Big Deal pricing for key customers (Big Deal Business) from a volume of 500.000 USD and upwards with a medium aggressive pricing delegation.
During my work I had the chance to gain knowledge in the pricing methods, tools and strategies for the key customers of a large IT company like Hewlett-Packard.
I would like to thank my manager and head of the EMEA PSG Sales Development Team Charl Snyman for giving me the possibility to work in his team, to write my thesis in his department and for answering so many questions despite his very busy schedule. Many thanks to Drs. Gerwald van der Gijp, the Sales Dev. Senior for the Nordic countries, for his tremendous help during the whole period of writing and defining the topic, discussing the content and supporting me with information and ideas and to Horst Karlsberg, the Sales Dev. Senior for Germany, for his support, patience and help, as well a part of the German Sales Team i.e. Carsten Bohlmann, Herbert Rosenbach, Detlef Willner, Hartwig Bertrams and many others not mentioned here.
Special thanks to Nicolas Barreyre and Ludwig Bauer of the Sales Dev. team as well as all other team members for their support.
Also special thanks to Prof.Dr. Dipl.-Ing Bernd Vesper for attending this thesis and his consultancy, as well as Prof. Dr. Mohammed Es-Souni for doing the second correction.
And last but not least very special thanks to Miikka Breti and Talia Shandling for their great help in proofreading this document and the inputs they gave me.

“Alone people can build chapels, together they build cathedrals”
Grenoble / France, November 2002
Christian Lang
 

Content

1.0 Executive Summary ... 6

2.0 Introduction ... 7
2.1 Foreword ... 7
2.2 Goals ... 9
2.3 HP Project Plan ... 10
2.4 Structure ... 15

3.0 HP a global acting IT company ... 18
3.1 The HP story ... 18
3.2 HP Financial facts ... 23
3.3 HP product and business portfolio ... 24
3.4 HP organizational structure ... 25
3.5 The HP competition ... 29
3.5.1 Dell Corporation ... 29
3.5.2 Fujitsu / Siemens ... 31
3.5.3 Toshiba ... 33
3.5.4 IBM ... 35
3.5.5 Pre-merger Compaq ... 36
3.6 PC Market competition overview EMEA ... 37

4.0 Pricing Theories ... 40
4.1 Preconditions of the pricing theory ... 40
4.2 Markets ... 44
4.3 Price and the theory of supply and demand ... 49
4.4 Pricing objectives and the break even point ... 56
4.5 Pricing methods ... 60
4.6 Customer decision process ... 65

5.0 Pricing methods HP PSG EMEA Sales Dev ... 67
5.1 Costs ... 67
5.2 List prices ... 69
5.3 Marketing guidelines ... 70
5.4 Channel ... 71
5.5 TV / MA9 / M72 pricing and MWD ... 71
5.6 War Room ... 74
5.7 Pricing strategies ... 78
5.8 Direct or Indirect Sales channel ? ... 83

6.0 Theoretical and HP Pricing in comparison ... 86
6.1 Pricing as a competition advantage? ... 86
6.2 Theoretical pricing methods ... 87
6.3 HP PSG EMEA Sales Dev pricing ... 87
6.4 Comparison ... 87

7.0 Strategic pricing recommendations and scenarios ... 92
7.1 Pricing environment ... 92
7.2 Pricing scenarios ... 95
7.3 Pricing recommendations ... 104

8.0 Deal Escalation Process and redesign of request forms ... 107
8.1 Large deal pricing request and escalation forms ... 107
8.2 Recommended Big Deal Request Form (BDRF) ... 108
8.3 The GPAR Form ... 109
8.4 The War Room Request Form ... 110

9.0 Conclusion ... 111

10.0 Sources ... 114
10.1 List of abbreviations ... 114
10.2 List of charts ... 115
10.3 List of illustrations ... 116
10.4 Interviews ... 117
10.5 Bibliography ... 118
10.5.1 English ... 118
10.5.2 French ... 119
10.5.3 German ... 119
10.6 Internet links ... 120
10.7 HP Intranet ... 120
10.8 HP Grenoble Internal Servers ... 120
10.9 Other Sources ... 121

11.0 Appendix ... 122
11.1 Picture gallery ... 122
11.2 Documents ... 127
11.2.1 HP Financial data in detail ... 127
11.2.2 Big Deal Request Form (original version) ... 128
11.2.3 Global Pricing Approval Request (original version) ... 129
11.2.4 War Room Request Form (original version) ... 131
11.3 Report of the interviews and prepared questions ... 136

Affidavit ... 142

Index ... 143
 

1.0 Executive Summary

Among the critical factors in the go-to-market strategy for key customers, pricing has a significant importance for the financial results of a company and a direct impact on profit.
This thesis “Pricing strategies and price politics in the key account enterprise business” compares theoretical pricing strategies identified in leading scientific literature with the pricing methods used in the HP Europe Sales Development environment. With the knowledge gained of this analysis, case studies with typical deal scenarios are documented and pricing strategies as an example recommended. A further result of this research is the recommended redesign of the deal escalation request forms (Big Deal Request Form, Global Pricing Approval Request and War Room Request Form) for key customers used in Sales Development.

For collecting the necessary information an extensive research in English, French and German literature, in the HP Intranet and documented interviews as well as continuous discussions with managers and the German Sales Team were done.

All theoretical pricing methods found in literature already exist in the HP Sales Development business environment or exist as a slightly modified method except the fixed pricing (4.5). The case studies and deal scenarios with pricing recommendation are an input to the Sales Development Team for future pricing. The deal escalation request forms are redesigned for the purpose of efficiency, information sharing, and risk management. It can be used for all European countries for regional, global and special escalated HP pricing requests from the country based Sales force to the Sales Development.
 

2.0 Introduction

2.1 Foreword

“No one should think that the area of pricing, particularly of newer forms of information products and services, is stable or that there are any simple guidelines. Product pricing is fluid, changing and rather uncertain as technology is changing the relative economics of traditional forms versus the new products and technologies.”¹

Sales is the part of a company with the most direct contact with customers and the market. Both give the company comment in terms of revenue and market share. It is the long arm of the Marketing, Finance and Product Development Division. The different tasks of the Sales Department are measurable in customer satisfaction and the profit of the company. For selling the products is one very relevant. This factor can still push developed high-end products, a brilliant quality and customer satisfaction down or up. Usually this factor is the key to the customer decision process and let deals win or loose; it is the price.

In many industries the Internet causes a high market transparency and competition worldwide. Because logistics are well developed, communication is possible everywhere, global players produce and develop 24h and 7 days per week the new technologies and globalisation are already visible and accessible for everyone. The global village² is reality and influences the professional life as well as the life of the growing generation.

[...]

1 Brindley, L.J. (1993: 297-305), “Information service and information product pricing”, Aslib Proceedings, Vol. 45 Nos. 11/12, November/December

2 Expression which stands typically for the easy overcome of geographical distances with the communication and logistic development