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Pricing & RevenueManagement inUncertain TimesDiscussion PaperNOVEMBER 2020

Contents101022 2021 Deloitte DigitalImbalance of supply anddemand during C-19 andshort term reactionsLong term shift inconsumer preferences andvalue chain transformation0304Combining value basedpricing and optimizationto reset pricing practicesShould we talk?

PRICING & REVENUE MANAGEMENT IN UNCERTAIN TIMESImbalance of supply and demandThe current crisis has challenged established market mechanisms and thereby also had an impact on consumer pricingPRICE IMPACTC-19 IMPLICATIONSDEMAND SUPPLYDEMAND SUPPLYSTRONG DECLINE OF CONSUMER DEMAND IN MANYCATEGORIES AND CHANNELSSTRONG UPLIFT OF CONSUMER DEMAND IN SOMECATEGORIES AND CHANNELS Consumers spending more on homeware products (home care)and more on home equipment (TV, furniture, kitchen, etc.) Economic effect of “Kurzarbeit”, job loss and economicdownturn5 Major disruptions of supply chains (some retailers have problemsdelivering orders due to the enormous increase in online commerceand the limited number of vehicles) Limited demand for travel (flights, hotel, holidays, restaurants),fashion (business clothing) and personal care products due toongoing restrictions Ongoing shift to remote work drives demand for networkinginfrastructure and connectivity of telecommunication companies1 Significant decrease of energy demand during major lockdowns inall leading industrial companies6 Strong price increase for certain household products (e.g.toilet paper, disinfection, gloves, masks) and priceacceleration of consumer electronics2 VAT reduction in German for all products and serviceuntil the end of 2020 to increase overall demand Overall German inflation (price level) is falling in 20207 Media coverage of price increase creates reputationrisk3 Partially regulation/ limitation of prices41 Deloitte: act-on-the-telecom-sector.html2 Lebensmittelzeitung: ektronik-1450183 Verbraucherzentrale: wucher-3 2021 Deloitte 4 Textilwirtschaft: refresh 15 Lebensmittelzeitung: fkraft-der-Europaeer-1488466 International Energy Agency: ctricity7 Institute der Wirtschaft: ml

PRICING & REVENUE MANAGEMENT IN UNCERTAIN TIMESMarket reactionsFollowing the significant shift in market dynamics, many companies put short-term pricing and offering adaptations in placeSETTING NEW PRICE POINTSPRICING OF NEWB2C OFFERS PRICING OFNEW SIMPLIFIEDPRODUCTS PRICING OFNEW PRODUCTBUNDLES PRICING OF NEWFORMATS4 2021 Deloitte Digital Direct B2C offers to create additional demandMetro, a German B2B wholesaler for the“horeca” segment, has opened its stores for B2Ccustomers and created special B2C offersduring the lockdown periodSimplification of product assortment to reducecomplexityMcDonald's offered a reduced menu at thereopening of its restaurants to simplify supplyand operationsDevelopment of new product bundles toincrease convenienceTelcos are offering networking tools in newbundles for free or at a reduced cost to aidcustomers in working from homeEvolution of product and service formatsCoca-Cola is revising product formats to bettermeet the needs of B2C online sales, and findalternatives to offering beverage fountains forbusiness customersREFINING PRICING MECHANISMSSOLIDARITYPRICING THMTargeted offers and donationsRewe offered a special promotion for peopleworking in essential jobs (hospital, etc.)Patagonia donates the full VAT reduction tosustainability projects New financing optionsFord and Citroen offered special warranties andfinancing conditions for new customers Tracking and freezing of extortionate pricesAmazon has identified sellers who havecommitted price abuse and removed more thanhalf a million products from its site from sellershaving violated the "fair pricing" policy Adjustment of dynamic pricing modelsLufthansa Group needs to manually adapt thesystem generated pricing suggestions due tosignificant change in consumer behavior andother input factors

T H O R S T E N Z I E R L E I N PA R T N E R„We believe that some of the trends we see as aconsequence of C-19 are here to stay. Shifts inconsumer preferences and supply chainimpacts will require manufacturers and retailersto re-think their pricing strategy and execution.“5 2021 Deloitte Digital

PRICING & REVENUE MANAGEMENT IN UNCERTAIN TIMESChanging consumer preferencesImmediate shifts within the consumer purchasing behavior require an instant shift towards more value-based pricing to create a competitiveadvantageLOYALTY SHOCKDecreasing loyalty of consumers specifically regardingestablished brandsNEW WAYS OF WORKINGTechnological development and increasing regulationssupport the digital work environmentLOCAL PRODUCTS & SERVICESIncreasing demand for local products & service withtrusted quality & secured supplyPRIVATE SPACE AND OWNERSHIPGrowing importance of the private space (e.g. house,flat) and ownership (e.g. vehicles)IN-HOME CONSUMPTIONMore consumption in the private space due torestrictions and increased infection riskDIGITAL PAYMENT SOLUTIONS ON THE RISEGrowing affinity towards contactless payment solutions,especially in the German market6 2021 Deloitte DigitalREASONED CONSUMPTION AND PRICE IMPORTANCEEconomical impact of the crises puts jobs at risk andcreates uncertaintyValueFocusHEALTH AWARENESSIncreasing awareness for health and infection risksamong all consumer typesCHANGE OF FREQUENCY AND FORMATSDecreasing frequency due to higher basket size andpreference of larger formatsONLINE ACCELERATIONFast growth of the online channels for all consumerinteraction from sales to services

PRICING & REVENUE MANAGEMENT IN UNCERTAIN TIMESTransformation of the value chainSignificant shifts within the value chain have a lasting impact on the commercial agenda of manufacturers and retailersNeed forflexibilityRisk of supplyprice creased resilience of valuechains required to react tosignificant shifts in supply anddemandDue to uncertainty in supplyvalue chain participants areincreasing prices and therebycausing a risk of inflation forcertain productsMany distributors/wholesalers and retailers areputting higher pressure onlabor costs, delivery costs,placement costs, etc.Competitors will be moreaggressive and sometimes actincoherently to secure theirmarkets positionsOptimization7 2021 Deloitte Digital

VALUE FOCUSPRICING & REVENUE MANAGEMENT IN UNCERTAIN TIMESCombining valuebased pricingand optimizationChanges in the consumer purchasing behaviorand the value chain demand companies toCUSTOMER EXPECT MORE . Reasonable prices, in line with the value perception of consumers Simplicity of offers and prices and creation of new offerings Increasing price transparency and consistence No misuse of a dominant market position Consideration of social and environmental values Personalization of offers, prices and promotionscombine value focus and optimization to updatetheir pricing strategyOPTIMIZATIONTOUGHER ECONOMIC CONDITIONS REQUIRE .8 2021 Deloitte Digital Pricing flexibility to react to variations in demand and supply Quick reactions to competitor moves Management of supplier pricing risks and distribution pressure Dynamic pricing to adapt to the consumer willingness-to-pay Differentiated prices by distribution channel Artificial intelligence and analytics to outperform the market

PRICING & REVENUE MANAGEMENT IN UNCERTAIN TIMESThe right analytics and technology is criticalWhat does a value driven and optimized pricing strategy look like?With the right technologyand analytics strategy,Streamline and improveAccelerate response toorganizations can:decision-making withconsumer changes,greater pricing anddisruptive competitors, andinvestment visibilitychanging market trendsCentralize pricing data toUse real-time insights toOptimize promotionalenable a more proactive,discover opportunities foreffectiveness, agility,informed, and efficientdriving growth, profitand ROIpricing strategyimprovement, and priceoptimization9 2021 Deloitte Digital

PRICING & REVENUE MANAGEMENT IN UNCERTAIN TIMESEmpower the commercial organizationEquip all levels of the organization with actionable, consumer-centric insights needed to win in the post C-19 marketplace12Planning andexecutionbackboneIntegrateddatafoundationERP orders, pricing,financialsStrengthen the foundational systems that run theTrade promotion managementRetail executionbackbone of the business: planning and executionOne source of truth: Move from data rich to dataData lakeSyndicated dataData warehouseconnected, enabling the generation of faster, moregranular, and better connected access andinsights to be consumer-obsessed and ted andautonomousenterpriseAgile commercial spend optimization(including marketing mix, digital spend)ConsumerpersonalizationCognitive deductionsresolution4P optimization(product, place, price, promo)Dynamic pricing andpromotionsAlgorithmic sellingArtificial intelligenceEnterprise ML, computer vision, expert systems,natural language processing/generation, roboticsCompete with industry peers through real-timeinsights leveraging the latest in cognitivetechnologies to predict and optimize, ultimatelyfeeding back to automate planning and executionOver time, build an enterprise performance layerinformed by our strategy combined with a leadingartificial intelligence fabric to proactivelyaugment decision-making and drive next levelautomation10 2021 Deloitte Digital

PRICING & REVENUE MANAGEMENT IN UNCERTAIN TIMESShould we talk?How Deloitte can help you to manage pricing in times of uncertainty11 2021 Deloitte DigitalASSESSI M PAC T O FEXTERNALCHANGESP R E PA R EPOSTCOVID-19RESETREVIEWBUSINESSMODELS &PRICINGDEFINELONGTERMROADMAPPurchasing andconsumption habitsRethink promotionsand set incentivesAdapt the offers tomeet customer needsDevelop new skills(Dynamic Pricing, AI.)Economics and valuechain implicationsAdapt trade policy andtrade termsSet prices and innovatein pricing modelsCompetitiveenvironmentReview price listsReduce certaincommercial costsIntegrate value focusand optimization intoyour pricing practices