Pricing Optimization Leads to Significant Margin Gains
Sagence helped a leading wholesaler optimize their pricing strategy by eliminating harmful discounting practices and increasing margins across the value chain.
Our client, a leading wholesaler of electrical, plumbing and hardware, needed to gain control of their pricing practices. They served a diverse customer base ranging from small, local facilities to international corporations such as Walmart and W.W. Grainger. The company’s discounting practices varied to accommodate a wide range of customer needs but caused them to lose control of their pricing standards. Worsening the discounting practices, our client had limited visibility across the value chain (e.g., architect, contractor, builder, end user), due to a reliance primarily on distributors and independent sales representatives. Our client recognized the impact of leaking margins on revenues, and engaged Sagence to identify pricing opportunities and to optimize pricing guidelines and controls.
Sagence began by analyzing the client’s historical data and isolated specific trends in “submarket” pricing to identify immediate pricing opportunities. We worked with the client to develop a set of action plans that leveraged a series of scorecards and reports to raise prices in these areas. Next, we profiled the sales and pricing processes by identifying key data elements, and built a relational database and analytics datasets. To validate the data we received and the data relationships we built, we profiled the information and aligned it with our client’s standard reports.
Following this, our team focused our analytics to identify comparable pricing scenarios (such as customer segmentation, order size, etc.), to find submarket pricing activity and trends, to measure sales representative performance, and to estimate overall opportunity. We also supported efforts to implement price hikes by factoring in customer sensitivity analysis, accounting for product importance (to the customer, overall customer discounting and order frequency). Lastly, our team automated the processes to support ongoing price monitoring and analyses to set the client up for long-term success.
With our advanced analytics, enhanced business intelligence reporting, and pricing optimization plan our client was positioned to change net income projections from 8.6% to 9.9% of revenue. In addition to positioning the company to capture additional margins, the insights gained from our analytic models informed the senior leadership’s new and effective revenue management practices.