Case study 1:
Readjustment of prices of approx. 30,000 products
Initial situation: TTS Marine
In the past, the product portfolio of ship chandler TTS Marine was priced flatly and exclusively using a “cost-plus” approach.
- Customers’ willingness to pay was not taken into account when setting prices – scope for price increases was not exploited.
- The price calculation was based exclusively on costs: Year after year, the savings negotiated by Purchasing were passed on to customers on a one-to-one basis.
- Due to the lack of market orientation, the company had “priced itself out” of the market by charging excessively high prices for individual product categories – sales and earnings had collapsed dramatically.
Procedure: Product Portfolio
The entire product portfolio was resegmented and realigned in terms of price. Measures included:
- The introduction of a new product hierarchy
- Conducting a value driver analysis and evaluating the willingness to pay for the product segments
- The definition of market-specific markup rates and prices
- Adjustment of the new prices and simulation of earnings and sales effects
Sales and earnings increased by a double-digit percentage in one year. The poor “pharmacy price image” was turned around.
“The use of the consultants paid for itself after four months,” according to a statement in WirtschaftsWoche by Mr. Rudnik, Vice President Services Winches
The project was named the best project in the field of marketing and sales in WirtschaftsWoche’s “Best of Consulting” competition. Read more on the WiWo-Blog.
Case study 2:
Better price enforcement through optimized discount and condition system
For a manufacturer of fasteners (screws, dowels, etc.) with annual sales of approx. 300 million euros, a discount analysis was carried out as part of a pricing audit. The findings included the following:
- No clear allocation of discount amount and customer value; even small customers received high discounts
- No differentiation of discount levels by product groups; marginal and core assortment were not differentiated in discount allocation
- Discount scope was fully utilized by most sales staff and discounts were partly given away; no consideration of discount behavior in the sales force compensation system
- Discounts were usually rounded up or equal in 5 percent increments
The main measures were the revision of the discount and condition system, the introduction of price controlling and the adjustment of the remuneration system. These included in particular:
- The introduction of product-specific discount groups
- The reduction of maximum discounts and shift of discount competences
- The definition of pricing and discounting KPIs as well as the programming of a management dashboard
- The introduction of a contribution margin component in the sales force remuneration system
Overall, it was possible to achieve a reduction in discounts of 2.5 percent, differentiated by customer and product. Conversely, this means that prices were raised by an average of 2.5 percent without any significant loss of sales. On sales of 300 million euros, this corresponds to an increase in EBIT of 7.5 million euros.
As is clear from the two project examples, the starting points for increasing earnings in price management can be very different. There are pricing levers, such as shifting discounting competencies, which can be implemented quickly. Other measures, such as the introduction of a new condition system, require significantly more time for development and implementation.