- Scientific Products
- Chemical Manufacturer
- Healthcare Product Provider
- Medical Products Manufacturer
- Glass & Plastic Products Manufacturer
- Cellular Biology Services
- Instrumentation Manufacturer
Multi-billion dollar provider of scientific products and services was growing at above-market rates but experiencing margin compression. Competition for largest accounts was intense and was pressuring pricing. Senior management was very concerned that pricing action could put volume at risk.
Our strategic pricing approach involved rigorous data analysis to determine the ranges of existing prices by market segment, customer size, and customer situation. We also evaluated off-invoice concessions and hidden discounts. Statistical analysis revealed customers and products receiving prices lower than necessary.
We provided strategies for responding to the largest, most competitive situations as well as standards for differentiating prices according to the market and situation. We added a risk-adjustment layer to the recommendations to minimize any customer defection. In addition, we trained hundreds of sales representatives to price strategically, and we introduced new tools for the sales team to evaluate and change pricing on all of their customers and products.
Margins improved by 50 basis points in the first year and by more than 100 basis points after the 3rd year. Sales growth continued to exceed market growth rates.
“The strategic pricing initiative we launched with Scott and his team was one of the most successful initiatives we have ever had. Their process and approach were outstanding contributors to our profit growth.” – President, Global Scientific Products Provider
This $100 million manufacturer of commodity and specialty chemicals was challenged to hit aggressive profit growth targets. Pricing changes were based on detailed analysis of costs and volumes by segment.
Working with the sales and marketing team, we introduced a structured approach for identifying the value of each product relative to alternatives in the market. We identified opportunities to improve the price/ value relationship and a structure to implement those improvements.
Margins improved by more than 50 basis points. Sales growth exceeded annual target.
“We thought we were pretty good at data-driven pricing, but we really learned a lot from the strategic pricing approach. It provided a significant profit improvement.” – SVP & General Manager, Chemical Manufacturer
This provider of health diagnostic and clinical lab products was struggling to improve margins in the healthcare market which was experiencing decreasing Medicare reimbursements and pressure from Group Purchasing Organizations.
Our strategic pricing approach included segmenting the customer base into groups with common value drivers and price sensitivity. Detailed quantitative analysis helped identify customers priced inconsistently versus their value/ sensitivity groups.
We offered strategies for negotiating with GPOs and IDNs by type of product with alternative structures for independent customers. In addition, we made specific price change recommendations by customer. We also trained the sales representatives to price strategically, and we provided tools for the sales team to accept or modify the recommended price changes.
Margins improved by nearly 40 basis points in the first year and by more than 100 basis points after the 3rd year. Sales continued to grow at market growth rates.
“An extremely valuable process. I wish we had done it years earlier.” – CFO, Healthcare Products Provider
This manufacturer of diagnostic equipment and supplies was experiencing margin pressure due in part to decreasing Medicare reimbursements and pressure from Group Purchasing Organizations. Margins on the most mature products were shrinking. Product list prices and net customer prices were only sporadically evaluated.
We performed a pricing diagnostic to identify the strengths and weaknesses in the client’s existing pricing processes, including customer segmentation, the use of appropriate price methods, price tiering, leakage on the price waterfall, the impact of performance incentives, and the proper metrics and measurement for price management.
We identified both short-term and long-term opportunities to improve the strategic dimensions of pricing. These involved staffing and compensation, setting and updating list prices, tiering within GPOs, proper customer segmentation, and establishing the slopes of differences in prices between customer segments and volumes. Specific metrics were created for measuring and reporting on the effectiveness of pricing.
A small, centralized pricing team was created. New processes for setting list prices and measuring price performance were implemented. Margins improved on those customers/ products whose prices were changed in accordance with the recommendations.
“Strategic Pricing Solutions showed us how we could improve our pricing processes and our profitability. Their approach to pricing is insightful and it really works.” – Executive Director Marketing, Medical Products Manufacturer.
Half-billion dollar global manufacturer of glass and plastics products was experiencing margin compression as prices did not keep pace with inflation. Sales were through distributors, direct sales and OEM components. List prices were changed annually according to “market conditions”, and the sales team had considerable discretion to discount.
SPS created a structured approach for the client to manage list prices and customer-specific discounts using multiple variables to estimate value and price sensitivity by segment. We analyzed multiple years of transactions to identify the segments, customers, and products with the greatest opportunity for price improvement. We also worked with the client to develop and implement tools that were used by product management, sales, and the pricing teams to manage their new processes and to replicate our analytical work in the future.
Price increases met or exceeded the inflation rate in the first two years of the new process, while sales grew at above-market rates. Client calculated 100 basis point improvement from new processes.
“Strategic Pricing Solutions was invaluable in improving our pricing and margins. In the past we tried to spread our target price increases across all business like peanut butter. SPS showed us how to analyze our transaction data and competitive positioning data to determine the segments and products where we had an advantage and could increase prices more.
Our overall results were much better than they had been.” – Global Pricing Director
This startup offered biology-based services to pharmaceutical and bio-tech companies to predict which drug compounds are promising candidates and which are likely to be toxic before moving to clinical trials. Based on a proprietary technology, the client was able to demonstrate very high accuracy rates in their predictive services, however this was an unproven service and the cost to potential customers of being wrong was extremely high. The client needed help in setting prices for their innovative new service that reflected the value of the service to customers, facilitated quick adoption by customers, and delivered appropriate financial returns to the inventors and investors.
We worked with the client’s lead scientists and VP Marketing to develop a financial model to estimate the value of the service to certain client segments. Price lists were then developed that reflected value to the customers, advantages over competing offers, advantages over doing the work in-house or not at all, and offered potential customers a return on their investment in the service. Targeted proof-of-concept promotions were also developed for select customers to encourage early adoption.
Major agreements were quickly signed with the FDA and a top 5 Pharmaceutical company, providing a commercial launch platform. Continued sales growth and financial performance over the subsequent two years led to a sale of the client to a larger, complementary firm, and provided solid returns to the inventors and investors.
This provider of instrumentation and consumable products was experiencing flat to declining sales in a no-growth market, and margins were being squeezed. The growth of instrumentation sales had slowed and was offset by a decline in consumable product sales. New entrants were expected in the market in the immediate future, the timing of which would coincide with the replacement cycle of many instruments.
We first structured a series of analyses to give the client a better understanding of performance by segment including level of technology adoption, growth by product category, margins, price levels, price realization and price elasticity. With this better understanding of performance, we created new tiers of prices by segment and a broader range of instrument acquisition offers to capture a wide range of customers and improve the margins on instrument sales.
We developed a tool for the client to profile their customers in order to categorize those customers based on predicted responses to the replacement cycle; and we developed sales strategies for each category.
The new price tiers have improved the penetration of previously declining segments, however new competitors are holding margins on consumables flat. New instrument sales growth has stabilized and margins have improved with the new instrument acquisition offers. Instrument customer profiling and sales strategies have resulted in 97% retention rate (replacement with new) for instruments at the end of the natural replacement cycle.