16
Weeks for Project Completion
1.3%
Increase in Annual Revenue
The Challenge
Historically, the client used a cost-plus approach to pricing with each product having a target margin. However, they believed this method was outdated and carried several risks including sub-optimal sales revenue, misunderstanding their own value proposition, and little flexibility in terms of responding to changes in the competitive landscape.
As a result, the company needed to build a value-based pricing approach that could be applied globally.
E-Commerce
In Chemicals, Specialty Chemicals and Materials Industry, the pricing process can easily become chaotic and complex due to the fluctuating prices of raw materials, a large number of SKUs and diversified clientele lists.
Our client was a global chemical manufacturer with annual revenue of approximately $1B and operations in North America, Europe, and Asia. The company serviced a highly diversified customer base and numerous industries including marine, aerospace, adhesives, paints, and energy through both its internal and distributor channels that added pricing complexity. They lacked a global pricing strategy and framework that would enable their sales and commercial teams to price customer-product combinations.
Pricing Solutions leveraged its extensive strategic and analytics expertise to build a value-based pricing program that resulted in a 1.3% increase in annual revenue.
Building a Solution that Fits
The Pricing Solutions team built a three-step strategy to help the client understand their value proposition and improve pricing process for numerous customer-product combinations:
- Identify Price Leakage
- Segmented the business by region and channel (i.e. North America > Distributors) to capture the regional differences and major customer type.
- Conducted an 80/20 analysis to rank customers and identify past instances of excessive discounting.
- Developed Customer and Product Micro-Segmentation
- Utilized the transactional data in combination with the sales/commercial expertise to identify attributes used to segment customers and products based on their value and pricing power.
- Developed custom dashboards to visualize the value segments and discount rates.
Above: 80/20 analysis helped to rank customers from lowest to highest pricing power
- Conducted customer and partner research to confirm the value drivers
- Implemented Practitioner and Sales Training
- Delivered in-person training to pricing program managers and sales personnel in each region to ensure global alignment on the value-based framework.
The Result?
During the final pricing workshops with the client, Pricing Solutions ensured alignment with the recommendations. Each region was provided with product list prices and price-bands for each customer-product combination that were based on the micro-segmentation. Establishing a common list price for products in the regions posed some challenges as there was high variability in the selling prices historically. Lack of a clear list price is common for B2B industries, but this can be resolved by combining insights from transactional data, internal teams, and the competitive landscape.
The sixteen-week project aimed to provide the client with a value-based pricing program that could be used globally to improve profitability. The project goal was achieved, as the overall impact of the price recommendations was a 1.3% increase in annual revenue.
The Pricing Solutions Difference
Building a pricing program on a global scale can be challenging, as there can be highly diversified customers and applications as well internal differences to consider. For B2B industies, cost-plus approaches are often seen as the one size fits all solution to these challenges, however, in most cases this approach is sub-optimal and makes the company leave money on the table.
By leveraging transactional data and customer research, Pricing Solutions helps B2B companies build a pricing strategy that is based on key value drivers. Our value-based approach to pricing ensues our B2B clients maximize sales revenue at the transactional level as well as improve long-term profitability.
