Engineering new-product success - The new-product pricing process at Emerson

Emerson Electric Co. is a diversified manufacturer with $14 billion in sale s. The Emerson Price Improvement Team is an internal consulting group that serves the 60+ Emerson divisions. The team's mission is to help divisions a chieve their financial and market objectives by providing pricing skills, t ools, and project assistance that improve a division's pricing practices. T his paper discusses an implementation of the Price Improvement Team's New P roduct Pricing Process at Fisher-Rosemount, a business unit of Emerson. Fis her-Rosemount is the world's leading supplier of process control systems, a nd measurement instrumentation. One of the eight Fisher-Rosemount divisions planned to introduce a new process sensor at a price of $2,650. After comp leting the New Product Pricing Process, Fisher-Rosemount increased the plan ned sensor price 19%, introducing it at a price of $3,150, resulting in a f ifth-year operating profit improvement of $11 million. The New Product Pric ing Process enabled the division to gain a detailed understanding of custom er perceptions of product value; determine a key design specification for t he new product; reduce cannibalization of its existing and highly profitabl e sensor by positioning the new product to optimize the total product portf olio; 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 busine ss strategy, is a goal of the process. Equally important, the process ensur es that customers receive fair value-based pricing while enabling the suppl ying company to maintain overall industry price equilibrium. (C) 2001 Elsev ier Science Inc. All rights reserved.