A major supplier of fastening products including screws and glue among other attachment solutions had widely different profit margins in geographically adjacent markets. Prices were not logical and some unique products with small volumes had lower margins than the most frequently bought products. Furthermore, some of the small resellers had better prices than the largest ones. Prices in the retail market varied quite a bit as well. The pricing process from purchasing, through the channel, all the way out to the price on the market was working poorly.
The company established a pricing process with distinct differentiation parameters, including uniqueness, price point and package size. Through that process, a Recommended Retail Price (RRP) was set for each individual product number. In addition, an incentive-based discount model for resellers was developed, connecting the reseller’s effort and performance to prices received.
Pricing was differentiated based purely on variable payroll, i.e. pricing was a function of labor, including overtime and outside normal workday hours. Variations in customer demand by season, weekday and hour – led to significant variances of the yield in the workshops, as demand fluctuated from less than 50% of capacity to well above 100%. Additionally, customer value-adds were given away for free because they were perceived as sales arguments rather than opportunities to increase customer spend and business results.
Features that some customers perceived as valuable and that had a cost associated with them were removed from the basic service, making it possible to offer a more attractive price to those customers that did not need or want the added-value services. Customers were then offered the value-added services for additional fees, making the average price tag higher than it had been before but with a better pricing image and lower average cost since no services were delivered for free. Service time slots were blocked for customers who had more urgent customer needs, enabling quick responses for those paying the premium price tags. Dynamic pricing based on demand was introduced, which improved yield and revenue at the same time as costs were reduced due to less overtime of extra resources during peak hours.
Residential construction companies are generally well positioned with their pricing strategies. There is a lot of knowledge of key value drivers which leads to prices that reflect the market’s general willingness to pay. Therefore, the opportunity lies in optimizing business results by an even more precise match between the prices set and the willingness to pay for each individual apartment.
Combining extensive consumer research with an optimization allowing all prices to vary simultaneously, including an analysis of cannibalization, business results were optimized as a function of the prices and the expected number of consumers interested in each apartment. By setting the prices accordingly, the revenue increased by 5% without impacting the sales pace of the apartments.
The Staffing Company used a cost-plus price method since it was founded. The hourly rates were differentiated only by profession and were not based on qualifications or experience. The company made the same margins regardless of workload or service level. Nor did The Staffing Company consider the size of the customer when setting its price margins. They had no established method for increasing margins for providing additional services, which often resulted in providing such services at no additional cost. A new pricing strategy was necessary.
After an exhaustive analysis of the company’s transactional data and the customers’ buying behaviors, it was clear that that there were many opportunities to capitalize on. Customers were willing to pay more for value-added services as well as for more qualified people. With this knowledge, we developed a differentiated pricing strategy based on several dimensions. For example, the new strategy considered the size of the assignment and the annual volume of business from each customer. We also developed a customized pricing tool that the sales staff could easily use to produce profitable quotes. This solution helped eliminate critical sources of revenue leakage.
Over the last 10 years, the leading Swedish media company MittMedia has lost 20 percent of its print circulation. To reverse this negative trend and return to profitability, MittMedia had to develop a new digital pricing strategy. The company adopted a strategic goal that focused on the new digital strategy, which will come out as the company’s core business by 2020.
PriceGain worked with MittMedia to develop a new digital strategy based on its customers’ preferences and willingness to pay. The work itself involved a quantitative analysis that resulted in new subscription packages with digital and print content, targeted to different subscriber segments. With these new offerings and prices, MittMedia is well positioned to capture the customers’ preference-shift from print to digital as the market continues to evolve.
A major gym chain with a strong brand faced challenges from low cost competitors and from a market demand that was inhomogeneous. Sales were not performing according to set objectives and churn rates were too high. Prospective customers were typically offered an all-inclusive membership with little variation, resulting in all customers paying the same rate regardless of needs and preferences.
Through quantitative research, the value parameters were identified and the differences in needs and preferences between different consumers were uncovered. A new modular value proposition was developed, and business results were optimized through an advanced optimization of profit, volume and revenue. Revenue and profits increased along with customer satisfaction as prospective customers could better match their membership to meet their gym service preferences.
Despite wide variation in customer needs, the company’s offering was for a product that was all-inclusive. Both the services and value add were included in the price of the products; however, the price was only based on the cost of the material leading to significant revenue leakages. The Sales team was convinced that customers were price sensitive and were in full control of what they paid for, but further customer research proved the opposite to be true – customers were less price sensitive than anticipated and confused about what was included in the price.
Through a thorough analysis, more than 20 Tactical Opportunities were identified, representing around 4 percent of revenue. In the first solution our team provided, half of the opportunities were selected for the ease of implementation. In addition, a new pricing strategy was developed. The all-inclusive offer was replaced by a modular value proposition allowing for multiple prices and led to a better match between customer needs and what was delivered. Profit margins were increased because of an improved ability of the prices of the alternative offerings to reflect value added as well as production costs.
Depending on whom you ask, the paper magazine has never been as affordable, or as expensive as today. Changed media habits and new distribution channels allow, and require, more personalized pricing and packaging leveraging a wide variety of digital options and combinations.
With the development of a new digital strategy, VK realized that there is a need to understand how their customers want to consume content.
VK introduced a new product structure, offering more options and allowing customers greater choice and flexibility to consume news, regardless of platform. The new structure and prices were developed using PriceGain’s Price Optimization analytics. Prices are based on an estimate of a readers’ “valuation” of consuming news in a particular manner, given price and cross price elasticity for all selectable product options.
VK managed to successfully package its offering and prices to increase profitability and reduce free reading.
Car-o-liner (COL) produces alignment bench systems for cars that need repairs as a result of a collision. Prior to selling COL, Polaris Equity Partners worked with COL to identify various opportunities that could improve COL’s pricing strategy. The primary improvement area identified was the pricing channel between COL and their distributors. The distributors had few incentives to perform better and were not consistently satisfied with COL’s pricing strategy.
With the support of PriceGain, COL developed and implemented an incentive-based pricing channel strategy that improved the relationship with the distributors and significantly increased both revenue and profitability. The pilot implementation in the US market improved gross margin by 36% while concurrently increasing volume. The improvement greatly benefited Polaris as it generated a higher ROI when divesting the company.
The company had a broad offering, ranging from doors to services and support, and was one of the strongest brands in the market. However, customers used prices offered by low cost manufacturers when comparing prices on doors and used small local low-cost service companies when comparing prices for services. Such benchmarking resulted in customers developing low “anchor” prices and put downward pressure on the company’s products and services.
The company developed a pricing strategy that linked the door pricing to service and support pricing, making it evident for the customers that buying from a full range provider is more beneficial compared to buying from the supplier with the lowest price on the individual parts of the solution. This made it more difficult for customers to use artificially low prices for reference points. As a result of this development, the company regained their previous competitive edge within the market.
The company offered three services to the music industry: free, entry level and advanced. The objective was to grow quickly but at the same time become cash flow positive as soon as possible, in order to sell the company at a high price.
Analyzing the company’s pricing and the distribution to current subscribers, PriceGain determined that a more expensive and more advanced premium service should be offered. As a result, many customers who were previously subscribing to the advanced service, migrated to the new premium service. In addition, many customers previously subscribing to the entry level service migrated to the advanced package, as their relative preferences and valuations of the different services were transformed by the addition of a fourth option.
The company had started its digital transformation several years earlier and had managed to transform its income from mainly hardware to a combination of hardware, software licenses and services. The company went from a perpetual income to a significant share of recurring revenue. However, even with these additional products, the company’s growth was stagnant.
The company developed a global pricing strategy comprised of a new modular value proposition, recommended retail prices (RRP), a new partner discount model, a standardized training system, and both support and tactical pricing initiatives that could better support the company’s effort to complete the digital transformation they had envisioned and to achieve the growth they desired.
During an analysis of the pricing strategy and tactics of a building materials retailer, several significant revenue leaks were identified. Prices were initially based on costs but the sales team had the power to revise prices. The revenue leakage identified was larger than the expected profit. More than half of the potential profit was “going out the window”.
Both tactical and strategic pricing opportunities were addressed. The tactical opportunities related to discounting, margins on products with low frequency, psychological price points, freight, warehousing services, unique customer orders and several additional leakage points representing a potential of 6 percent of the turnover. The pricing strategy developed ensured long term sustainable growth and profits turning pricing from cost plus to a value driven price differentiation based on customer needs and preferences.
As has been an issue for companies around the world, the magazine’s circulation volume was gradually declining, making it tougher to continue its publication. Significant efforts were made to draw the attention of consumers, providing them with events, giveaways and special offers. Despite these efforts, circulation continued to decline. Even worse, the frequent and multiple special offers resulted in many customers refusing to purchase the magazine at its regular price, preferring to wait for, the next bargain.
The media house realized two things that needed to occur to ensure the magazine’s survival; (1) The consumers would need to pay more, and (2) The value proposition would need to be redeveloped as it had become outdated. The new offer made it possible to choose between the print magazine only, the print and digital magazine, obtaining several digital services with the digital magazine, or only obtaining certain digital services. Customer research estimating price elasticity and cross price product elasticity was conducted as inputs to a comprehensive business modelling exercise where circulation, market share, revenue and profits were optimized. This led to a significant improvement of business results and, for the first time in years, an increasing number of paying customers.
This train operator had a very static pricing structure due to regulatory constraints. To remain competitive with other means of transportation, it was necessary for this train operator to revise its offerings and pricing strategy.
The company took an outside-in approach to pricing and surveyed the willingness to pay of its customers for their new offerings in addition to the existing options. This allowed the operator to adjust prices for some existing offerings and also introduce new offerings that could be sold without regulatory constraints as alternatives to the regulated products.
The company supplies customized industrial components to the heavy industry, used as an integral part of its customers offers to their clients. Pricing was based solely on material costs and estimates of the production costs. Customers were quite satisfied with the supplier, but business results did not reflect the value delivered. The needs and preferences of customers were not reflected in the current pricing strategy leading to a one-size fits all service level.
Value drivers were identified through an internal assessment and customer interviews. Revenue leakages were identified and estimated through transactional analysis. A new pricing strategy and pricing process was developed, whereby the Sales team was given access to a pricing tool that could be used when advising customers on what and how to buy. With the tool, the Sales representative could guide the customer to the service level to select that best matched their budget.
A global premium supplier of printer supplies planned to launch a low-cost alternative in the Russian market. The supplier had suffered volume losses to local low-cost brands and wanted to regain market share.
After a price optimization analysis, it became evident that the new low-cost alternative would primarily cannibalize on the suppliers own premium product volumes rather than regaining volumes lost to the local suppliers. Subsequently, the company saved millions by avoiding the development costs for the new low-cost product.
Two suppliers whose offerings complemented each other merged. They had significantly different pricing strategies, one maintaining high base prices and high discounts while the other had market-level prices and lower discounts. To ensure that the potential profitability improvements from the merger were realized, it was necessary to harmonize both the base prices and the discount structure.
The merged company developed a new pricing strategy for the base prices and discounts. Base prices were set in line with market prices whilst capturing possibilities to maintain higher margins, where possible, based on product characteristics. As base prices were closer to market prices, a new discount structure was developed and implemented so that margins were maintained. The new discount structure ensures that the discount given reflects the value of the product to the customer.
The need to optimize workflow management in workshops for vehicles is well known. Work-station utilization rates are typically lower than desired due to inefficient processing methods. The company developed a Software-as-a-Service (SaaS) solution that enabled increasing utilization while simultaneously optimizing the workforce. A problem emerged when the company was unsure how to charge for the solution, especially as customers ranged from single workshops to large chains of workshops owned by the OEMs. A traditional monthly license fee, such as for on-premise solutions, was not viable and would not give the desired business results.
Through market research and customer interviews the value drivers were identified. The solution was two alternative pricing models, one that larger OEMs would prefer and another that was tailored towards small chains and single workshops. The parameters that had the highest value were impact on workforce costs, throughput number of vehicles, remote management capabilities in addition to support and consulting services. The solution was a combination of a lower annual license fees and options priced as a function of the value delivered.
Customer service and satisfaction were top priorities. If the customer requested something, it was delivered. This resulted in a catalogue with more than one million products. Not only were services customized but they were also specifically included in the price of the products. Products specially procured for a customer generated less gross margin than those in the standard price list. Additionally, the costs to procure and deliver these specials were higher, leading to very low or in some cases, negative profit, as the magnitude of these costs were not dynamically reflected in the product prices.
Through an internal assessment comprising transactional analysis, internal interviews and an analysis of the pricing strategy, the pricing processes, the organization’s willingness to change and other factors, more than 30 areas of revenue leakage were identified. The volume of revenue leakage was so great that it represented a value greater than the current annual profit generated. By incrementally implementing a variety of tactical opportunities to address the revenue leakage, significant profit improvement was generated without any noticeable impact on the sales volume.
The bookstore chain was a dominant retailer in its geographic locations. Price had typically not been an issue until competition from aggressive e-tailers picked up. Over time, the stores began receiving an increasing number of questions from customers asking why prices were higher in the store than online. Price differences varied from a few percentage points to up to 50 percent less online. The general feeling was that prices in stores had to be cut significantly across-the-board to retain customer loyalty and sales volumes.
A new retail pricing strategy was developed that ensured prices for top selling titles were matched with the prices of competing online stores. In addition, it became clear that there existed a segment of customers who did not care about the price difference because they continued to buy the books in the retail locations. Therefore, a business modelling exercise was conducted in which sales volume, revenue, profit and market share were analyzed as a function of varying prices. The analysis showed, for example, that a key customer segment, women around 40 years old, had a higher willingness to pay for books in retail than anticipated while students had a lower willingness to pay in stores than online. This enabled a highly focused and targeted price reduction strategy.
The logistics solution provider was among the dominant vendors in the region. Pricing was not a key business development area and prices were based on a cost-plus strategy. The offering had not been altered for several years despite a dramatic change in demand due to the new wave of online purchasing. It was difficult to quote, and customers felt unsure on how to understand what was included in the service that had been purchased.
A new pricing strategy was developed, focusing on the value proposition and the sales and pricing process. The new strategy was centered around the modularization and differentiation of the offer while the main objectives of the sales and pricing process were to reduce revenue leakages, to charge for value-add features, and to speed up the price quoting process significantly, reducing it from weeks to less than an hour. This was possible by implementing a pricing tool developed for Sales.
The decline in demand for Paper Pulp had been anticipated for many years and it finally happened. The industry was soon over capacity, putting a pressure on some suppliers that had never been seen before. It was anticipated that prices would decrease to keep the manufacturing process running 24/7. Unfortunately, customer forecasts were not accurate, and the actual individual demand was often significantly higher or lower than the forecast. Additionally, services were provided free of charge, i.e. they were included as part of the price for the pulp.
Through extensive qualitative and quantitative research, it became evident that customers had significantly different needs when it came to value-added services as well as their respective service levels. Some customers wanted a guaranteed volume while others preferred to buy more spontaneously. In addition, certain services, such as warehousing, quality tests and R&D collaboration went unused by some customers while others valued and utilized these services at significant levels. The key element of the new price strategy was a modularized value proposition that enabled customers to choose services and service levels that fit their needs, preferences and cost budget which reduced revenue leakages.