Improving Underlying Pricing Capabilities to Drive Millions in Margin Growth Nationally
Case Study: Distribution & Wholesale
The North American distribution industry has been in a state of flux. It has been challenged by current industry trends – rising oil prices, SKU proliferation, a shift towards more regional supply chains, increasing modes of freight transportation and expanding trade with emerging markets – but has remained optimistic about future growth.
One electrical distribution company in particular, was working towards competitive business objectives. It had relied heavily on cost-based pricing to date, but knew continued growth would hinge on strong pricing improvement.
It was in search of a corporate pricing philosophy, and partnered with Pricing Solutions to establish a durable pricing structure, strategy and execution.
With sales currently totaling +$1B in 2013, long-term pricing improvement would ultimately contribute to millions more in annualized margin improvements for the client.
In the past, it had proven extremely difficult to sustain pricing change because each of the company’s divisions had a significant amount of pricing independence, including having unique data structures and customer classes. Any pricing project therefore represented a significant undertaking.
The firm’s pricing had also been based on cost-plus strategies. If the distributor were to successfully move to value-based pricing, the new pricing infrastructure would need to maintain some flexibility and customization between branches and banners.
Finally, the client recognized the need for a dedicated pricing organization and well-defined pricing roles, but up until that point, hadn’t had the support it needed to create an effective division of pricing responsibilities, develop internal tools and train employees nationally.
Building a Solution that Fits
Based on the client’s needs, four objectives were within the scope of the project:
- Identify positive margin growth opportunities across all divisions
- Create pricing best practices
- Provide pricing tools to execute the pricing strategy
- Design an infrastructure that will promote a consistent pricing methodology
The project would span 6-months and include three phases: Discovery & Hypothesis Development, Data Deep Dive and Implementation Planning.
The internal interviews, interviews with current customers and transactional data collection/analysis were key inputs for the final project deliverables, including divisional micro-segmentation, pricing governance guidelines, winners and losers analysis, e-Learning sales materials, etc.
By the end of Phase III, the distributor had improved its World Class Pricing level from 1.9 to 3 and implemented multiple pricing recommendations.
What’s the Pricing Solutions Difference?
Our confidence in delivering against project objectives was evident; Pricing Solutions engaged in risk-sharing in this project example.. The client achieved a return of 10xs their project investment within 12 months. This included generating a step change in the client’s own capabilities to ensure continued returns for future businesses.