Pricing Excellence and Mix Management
Pricing and mix management is a critical lever of value creation, but few companies feel they do it really well. We see money being left on the table in a discrete handful of areas, which guides our overall approach:
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Price leakage: unrecovered costs (e.g., short runs), uncaptured value add (e.g., support and service) and contracting disciplines (e.g., unearned rebates) all represent areas of typical price leakage. Putting in place the processes, guidelines and information necessary to mitigate this leakage can be worth 100bp+ in margin improvement to an organization.
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Price discipline: unwarranted pricing variances (e.g., different pricing for same product or service to different customers) is another typical area where companies leave money on the table. Establishing stronger disciplines, guardrails and incentives will serve to minimize the ‘tail’ and drive higher aggregate margins.
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Price differentiation: the bespoke nature of many companies’ product and service offerings necessitates a typical cost+ model. That is not the issue per se. The issue is when the ‘+’ is not tailored based on differences that a company has in price leverage across products, services or customers. Building and applying the ‘Courage Meter’ is a way to ensure you capture the full margin potential of your market leverage.
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Price strategy: the points above are largely about price setting and execution. But many companies still have a significant untapped opportunity in terms of their overall pricing strategy. Where should I be pricing for share vs. margin, and vice versa. Effectively how do we optimize where we are on the price-demand curve in a way that maximizes realized profitability.
We understand these issues and how to diagnose them quickly. On this basis we design and execute tailored programs that deliver near-in top and bottom line improvement while upgrading the pricing muscle of an organization. Learn more about our work in this area via the thumbnails below.
Power Components Manufacturing Case Study
Context:
Company was losing $20M annually in price concessions as large customers had tremendous buying power and competitors were driving down price in a growing commoditized market
Project:
Application of the 'courage meter' as a basis for identifying near-in re-pricing opportunities and informing ongoing price logic and margin targets by region, product, and customer
Outcome and Impact:
From $20M in annual price concessions historically to a forecast price 'gain' of $5M in 2018 (+$25M)
National Food Ingredients Distributor Case Study
Context:
Large ingredients distributor that lacked consistent pricing processes and line of sight into pricing performance resulting in low margins and a need for a quick win and long term solutions
Project:
Comprehensive pricing program to address areas of leakage, reduce unintended price variances, and identify differentiated pricing opportunities
Outcome and Impact:
Pricing playbook worth just over $6M in annual EBITDA improvement
Metal Distribution and Services Provider Case Study
Context:
Distributor generating returns lower than the competition and below the cost of capital resulting in the need for broad turnaround plan from strategy to commercial effectiveness
Project:
Profit enhancement plan via improved line of sight into cost drivers, profitability at the intersection of route, customer and product and external customer insights (e.g. headroom, decisions drivers, and competitive positioning)
Outcome and Impact:
Identified over $18M+ of EBITDA improvement 5 point improvement in run late EBIT margins post implementation
UK Consumer Packaging
Case Study
Context:
Market leader seeing significant top-line and bottom-line YoY declines in core business due in part to an ineffective pricing model that resulted in the company over pricing simple projects and under pricing complex projects
Project:
Developed a new pricing model to more effectively compete against disruptive low-cost competitors that allowed for transparency in pricing of additional value added services not being provided by the competiton
Outcome and Impact:
Business turned around from declining performance to YoY growth with no major market and/or competitive shifts
Regional Building Materials Distributor Case Study
Context:
PE owned Regional construction materials distributor with 10 distribution centers of varying performance had unstructured and undisciplined pricing resulting in significant unrealized margin
Project:
Identification of leakage and development of clear and actionable playbooks for Sales to execute; differentiated pricing tactics at both the DC and customer levels
Outcome and Impact:
Supported YoY revenue growth of 9% and EBITDA of 20% leading to sale of business to strategic buyer
NA Industrial Distributor
Case Study
Context:
Metal service center's Sales Force lacked consistency in pricing resulting in vast differences in profitability and significant margin being left on the table
Project:
Implementation of standardized pricing model to capture increased variable margin associated with processed commodities and smaller customers
Outcome and Impact:
15M+ in identified EBITDA potential
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