Introduction and challenges
Price is one of the most obvious ways to impact an organisation’s revenue. Across multiple industries, we see that companies often set prices on a cost-plus basis, allowing their sales teams to discount as they deem necessary to secure sales. Pricing can rapidly become a myriad of poorly understood interconnected decisions, which result in a lack of transparency and negative paradigms: “We have no control, the market dictates our price”, “Customers want what they want, we can’t influence this”, “We need an IT system, that will fix our problems”.
This is true for commoditised products, however similar paradigms exist in branded or speciality products, where the producer has greater scope to selectively supply and value price.
How we can help
Our six-step ‘Pricing Excellence’ approach seeks to reset the reference pricing points, using true cost-to-serve analysis. This provides greater clarity and visibility of the target sales prices and the degree to which current pricing varies around that. We usually find that 25% to 40% of products make no (or a negative) contribution, and typically that 10-20% customers are not profitable.
We help companies to form new pricing structures and deploy these more effectively through sustainable pricing reviews and reinforced, better informed governance forums. We can provide a clear pricing framework for the sales team to work with and a clear process for reviewing and resolving price variances and enhanced profitability.
The six stages of our ‘Pricing Excellence’ approach involve conducting a pricing and maturity assessment, as well as analysing true product and customer cost-to-serve, and reviewing current profitability of products, customers and materials. As a result of the assessment and analysis, new pricing models, structures, rules and accountabilities are developed. To embed this the pricing process is refined and a cross-functional operating system developed, with actions taken to reduce the price variability.
Our ‘Pricing Excellence’ approach has been applied across multiple industries, including chemicals, manufacturing, food and plastics, each realising at least 1% of sales increase and 8% of EBITDA benefits.