Pricing is the profit lever that has the most impact on the bottom line. Yet, most businesses neglect to take an analytical look at how they might improve their pricing structure.
Our approach covers two primary areas of pricing. Taken together, they enable us to consistently deliver 2% or better measurable improvement in EBITDA for our clients.
Pricing area 1: Analytics - The "Pocket Margin" Waterfall
The pocket margin waterfall measures margin erosion from list price by incorporating all discounts, allowances, rebates, and special costs to service a particular transaction:
Our approach involves measuring and calculating each price waterfall element at the transaction level (line-item on an invoice). This depth of measurement enables us to perform detailed profitability analysis by customer, product, sales territory, region, and any other factors relevant to your business. It also enables us to efficiently analyze each waterfall element to understand inconsistencies in how pricing is administered across your business.
Through rigorous price waterfall analysis using KiniMetrix, we uncover a list of “price leaks” and develop a list of opportunities (usually in the form of process and policy changes) for you to patch those leaks.
Our expertise in price waterfall analytics enables us to generate a pocket margin database for most clients within 2-4 weeks. For an example of how pocket margin analysis can drive profit impact, check out this case study.
Pricing area 2: Segmentation - Pricing in Line with Value
Most companies rarely consider nuances in market segmentation when they develop pricing. Depending on what you are looking to achieve, the definition of “market segmentation” may vary. We believe that a clear concept of relevant segmentation – pricing segmentation – is essential for achieving bottom-line improvement.
A smart pricing segmentation is a powerful tool because it considers each of the following:
All components of value in the offering delivered to the customer, not just product components; for example, it includes elements like quick delivery, special packaging, order size
The various customer buying situations; savvy managers recognize that one customer can fall into multiple segments, depending on their changing needs from order to order
The following chart shows how most businesses think of pricing segmentation and where the untapped opportunities lie
Through a market-focused approach, we develop creative pricing segmentations that enable clients to achieve higher prices and deliver more value to customers, while maintaining or growing unit volumes.