Case Study: Parker Hannifin
Strategic Pricing Associates led Parker Hannifin’s Strategic Pricing Initiative through its pilot stage from 1999 to 2001, and through the global roll-out from 2001 through 2005. Encompassing all of Parker’s operations worldwide, roughly 90 manufacturing businesses and 30 trading subsidiaries (company-owned distribution channels), the initiative was a central part of CEO Don Washkewicz’s WIN Strategy, a three-pronged approach to improving profitability in this $10 billion, NYSE company (PH). The initiative involved leading all of Parker’s operations away from an undisciplined, non-strategic “cost-plus” approach to a value-based, strategic architecture with improved internal processes and controls.
Working with operational leaders worldwide, SPA developed pricing strategies that maximize the profitability of each business unit. The project covered virtually every aspect of Parker’s pricing mix including:
- Competitive strategy and positioning
- Channel pricing strategy into distribution: list prices, discount tiers, rebates, exception pricing guidelines
- Value-based economic analysis of customer usage
- Good/better/best positioning of products
- New product pricing strategy
- Direct account pricing strategy: customer/part number pricing recommendation
- Global pricing agreements
- Management of freight recovery, EDI incentives, other terms and conditions
The project led to Parker Hannifin’s decision to employ a strategic pricing manager in each division. SPA also helped Parker recruit a VP of Strategic Pricing, Dick Braun, with whom they had worked earlier in his career at GE Lighting.
The impact was estimated at $800 million by Don Washkewicz, as reported in a front-page Wall Street Journal article (March 27, 2007), and on the cover of Inside Business (May 2007). Parker’s share price more than tripled during the period, easily outpacing peer industrial companies’ performance.
SPA also helped Parker with training and development to institutionalize the positive impact. Beginning in 2004, SPA developed the Strategic Pricing Workshop program for Parker’s distribution channel. From a pilot program of six distributors, the program has expanded to over 60 of Parker’s leading distributors, with a majority of the elite distributors in each business segment participating in the program. Over half of the participants have progressed from Generation I to Generation II or beyond, with the original pilot six distributors now in Generation III. Parker distributors have consistently achieved improvements greater than 2 percent of sales; and many have reached 4 percent of sales.