Constructing a simpler pricing structure
A construction industry company was having trouble pricing its products for small and medium-sized customers. The company decided to launch a price list revamp project with August with two objectives: 1) simplify the price list structure and 2) decrease price variation.
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Challenge
As August analyzed the pricing performance of the company, it became clear that the client had no systematic way of setting prices for small and medium-sized customers. The price variation among these customers was significant and even illogical at times. The company needed to segment the customers better and determine clear-cut price setting rules for these different segments. Additionally, the price list structure was very complex. For example, there were several different ways to communicate prices to customers. This needed to be simplified as well.
Brave the future
Based on historical pricing data, the client and August carefully defined price points for every product in the company’s portfolio per customer segment. The goal was to make price differences between products and customer segments more consistent. August simplified the pricing structure and created a price simulation tool to verify the impact of different price change scenarios. As a result, the client had a concrete tool for setting product prices and estimating the impacts of the proposed price changes to the company’s topline.
Impact
After the new pricing structure had been introduced to the market, we conducted a thorough analysis of its impact. It was evident that customers had adopted the new simplified pricing structure well and the company had significant volume growth among new customers. The like-for-like price increase, which goes straight to the bottom line, was 5% for the total addressed revenue. And especially for new customers, the realized price increase was even in the double-digits. This impact would not have been possible without the great internal change management work done by the company’s pricing manager and commercial director. Payoff for the consulting investment was 16x in less than 12 months.