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Statistical B2B Price Optimization Case Study
A mid-market distributor with a history of acquisitions quickly grew to be a global industry leader. With growth came an increasingly complex pricing environment with tens of thousands of unique SKUs being sold to over ten thousand unique customers every year across larger geographies. The simplistic cost-based pricing matrix/segmentation structure (varying markups based on simple dimensions such as customer type/size and product type/velocity) started to break down.

Management periodically implemented price adjustments to pass on supplier cost changes, and to maintain/increase profitability levels to meet financial targets. However, price increases were becoming less and less effective (“did not stick”), causing gaps to plans and forecasts – which translated into higher pressures to increase volume.

The sales force grew skeptical of corporate pricing actions. In an effort to chase and defend volume, they started engaging in increasingly rampant discounting. Discounting became part of doing business every day. It consumed significant rep time and effort, and it grew into a source of frustration across the organization. Management also struggled to control the discounting behaviors (and, therefore, margins), and wished the sales force focused more on market and customer value, rather than operating with a cost-driven pricing mentality

  • Developed a new market-aligned price structure, by applying statistical techniques to segment transactional data based on market-relevant factors, and to develop optimized pricing recommendations.
  • Configured statistics to reflect input from sales, product management, and also from the executive team to ensure alignment with business strategies.
  • Balanced complexity with the need for a price structure that inherently “makes sense” for all stakeholders, including the sales organization.

Execution and Change Management

  • Removed visibility to cost and margin from the main user interface used by sales to manage transactional prices and discounts, replacing it by information on product/customer-specific "market price ranges" ("guidance"). 
  • Realigned existing pricing approval/controls framework with new price structure.
  • Conducted review of sales force incentives plan to update plan elements in support of strategic objectives.
  • Formulated detailed communication and training plans/agendas.
“Our typically skeptical sales force was surprisingly quick to buy into the new price structure. This was thanks to the effective change management techniques the team deployed, but also a reflection on the accuracy with which the new structure realigned prices with different price sensitivities in our markets. With prices that had our sales force’s confidence, the rate of rep-driven discounting plummeted to unprecedented low levels. Our reps are also finding more time available to spend on value-add selling activities, which they had previously spent on managing pricing issues. Given the resulting margin expansion (2%+ margin improvement on affected sales achieved in about a quarter, which came at no measurable expense of volume loss), the project returned investment in just a few months.”
Regional Vice President of Sales

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