Pricing Optimization

Striking the Right Balance for Margin Advantage

Course Overview

The issue of margin erosion will never end if distributors do not get creative—first with their pricing methods, and second with their value proposition. Issues involving pricing methods are more critical to profitability and so should be tackled right away. For many distributors, pricing decisions are completely left to individual salespeople to do in their own way. Pricing is already quite complex, and inconsistency will only increase complexity and will lead to chaos. The solution to this dilemma lies in “complexity management”—providing structure with fewer variables, and “consistency”—doing things the same way every time. The time has come for distributors to address their concerns about shrinking margins by upping their game on pricing decisions. If distributors keep doing more with less, they’ll soon find themselves doing everything with nothing! This program will help you achieve the right pricing solution for your business!

Who Should Attend

  • Sales and Branch Managers
  • Customer Service Personnel
  • Pricing and Purchasing Professionals
  • Executives and Strategic Managers
  • Business Analysts and IT Managers

What can you do immediately after the course

  • Improve margins by 150 basis points or more in months
  • Adopt a practical—yet scientific and simple—framework
  • Choose key variables that must drive your pricing decisions
  • Use existing information in your system to increase margins
  • Give meaningful, concise information to your sales force
  • Implement pricing best practices with minimal resources

Testimonial

"The pricing optimization program has been an invaluable tool for highlighting opportunities to improve margins. Implementing the principles in a pilot location raised gross margins by over 3% in less than a year. It has been an eye-opening experience for those salespeople using the cost-plus method for determining sales price."

Kevin Martin, Vice President of Operations, Pipeline Packaging

Course Outline

Motivation and Trends

This program is designed for implementation in most IT systems. The model is in no way designed to replace a salesperson or pricing analyst. Instead, the process is designed to provide, in a concise manner, relevant information formatted for use without looking through several screens in the system and conducting significant offline calculations. The system brings the science (in terms of pricing analytics and the firm’s pricing strategies) and the salesperson brings the art (in terms of customer relationships and market understanding) to make an effective pricing decision.

FRAMEWORK – 5 Primary Drivers

The 200 variables identified from the distributors’ pricing process are distilled down to 5 critical primary pricing variables—customer type, item rank, item visibility, item unit cost, and historical margins. These variables are fundamental and critical to any pricing decision. The variables that are not included as primary would be secondary variables. It would be good to have them if available but are not as critical as the primary drivers. Any pricing decision should address and include these drivers.

ANALYTICS – Data Transformation

The section will demonstrate using an objective approach the following rules to profitability:

  • Customer Stratification will help determine profitable versus not-so-profitable customers
  • Item Stratification will rank items based on key factors (top line, bottom line, and customer service)
  • Item Visibility will determe each item’s importance from the customer’s perspective (sensitivity)
  • Unit Cost Level will classify items based on unit cost to determine pricing or margin improvements
  • Gross Margin Level will classify historical margins at varying unit cost levels to identify opportunities

OPTIMIZATION – Process Consistency

This section will use the results from the analytics phase to develop pricing rules based on the 5 primary drivers. Pricing rules can be developed for various combinations. Rules will help deal with individual scenarios and the system will suggest a price. The price will be determined by calculating a risk factor, called opportunity gap multiplier. The risk factor and the price are the result of various criteria that are set up by management and the classifications based on historical transactional data.

EXECUTION – Putting Things Into Action

The prices that are determined as a result of the optimization phase need to be validated by performing simulations and what-if analyses. Given the number of variables and scenarios, it is paramount to understand the cause-and-effect relationship between variables and their corresponding results. In other words, we will perform sensitivity analysis as a validation process.

Roadmap

It’s time to move away from the “gut-feel” and “art” approach to pricing optimization and adopt a scientific data driven comprehensive and holistic approach. You will be given a 10 step prescriptive plan to implement an objective and data-driven pricing process right away.

Course Packet – Tools and materials

What will you receive at the program?

What do you need to bring?

Slides as a course booklet

List of key pricing challenges at your firm

Workbook for exercises and activity

Calculator

Pricing Optimization Book

Customer Stratification Book

Certificate

Course Instructors

Barry Lawrence, Pradip Krishnadevarajan, Senthil Gunasekaran

Course Timings

Day 1: 8:00am-5:00pm
Day 2: 8:00am-noon