Tuesday's Wall Street Journal featured a wonderful article on the radical new pricing policies initiated by the new CEO of Parker Hannifin.
It's sort of a good news/bad news story.
The bad news is, PH had actually hard-coded a fixed markup percentage into their pricing management software. Talk about inflexible, stupid, and being insensitive to the uses to which your products are put. I can see using a fixed minimum markup percentage, but not a fixed universal markup.
The good news is that the new CEO, Don Washkewicz, has brought an end to this practice, and instituted a 'willingness to pay' style, application-sensitive approach to markups. The customer's applications of PH's seals is now a paramount input into pricing. Thus, the company's marketing and product people focus more, not less, on customers, and their applications of PH's products. PH added $200MM of revenue and income to its P&L in four years, bringing it up to its current $673MM.
Two interesting things were mentioned in this story. First, how inept external consultants advocated PH develop a greater customer service focus, but neglect to accompany that with segmentation, product differentiation, and pricing strategies to pay for it. Second, PH had a total insensitivity to how its products were used by its customers. They knew next to nothing about the real customer problems, applications, and options for which PH's seals were alternative solutions.
In short, a lack of fundamental marketing skills existed at Parker Hannifin prior to Washkewicz's elevation to CEO. Now, PH has such a focus, and I hope it makes an appearance in my equity portfolios soon.
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