Strategic pricing improves the bottom line

For some years, competition has urged Kompan to set up a number of services for the customers to defend its position as a price leader. The price pressure resulted in an increased need to differentiate prices and discounts for different segments, channels and customers in order to maintain a satisfactory margin.

Shifting the customers’ focus

In addition to the lack of connection between discount and the customer’s value, the diagnosis showed, supplemented by interviews in the sales organisation, that there was a large potential in shifting the customers’ focus to products with a higher profit margin. Moreover, an analysis revealed that the average discount was 10-15% higher than originally planned.

A complete price implementation concept

The project contains a combination of a large number of different competences combining strategy, pricing, marketing, sales and implementation of organisational changes. As part of the roll-out of the solution in eight countries, one country was selected as a pilot project. A complete price implementation concept containing an “analysis package”, a “training package” and a “tool package” was developed. These packages consisted of specific analysis and training tools, a detailed implementation plan including the agenda for the individual workshops, discount policies, processes for the work with price structures and followup plans. All “packages” were tested in the selected pilot country.

The process with:

1. analysis
2. training
3. implementation of tools ...

... supported the change process as each sales office was involved at an early stage in connection with the preparation of the analysis package. In the solution, a special focus has been devoted to developing tools, KPIs, processes and followup procedures in order to ensure a permanent effect in the organisation. Many resources have also been dedicated to developing and implementing a simple IT support for the follow-up on price and discount structures on the different markets.

One of the challenges in the solution was to implement improvements in eight countries with widely different cultures and approaches to sales. By using Implement Consulting Group’s implementation model and involving all relevant employees in the company’s sales organisation, Kompan succeeded in overcoming this challenge.

Results

One year after the launch of the project, the bottom line in the sales offices working with pricing in a structured way has improved by 1-2%, corresponding to additional annual earnings of more than DKK 10 million

The improvement primarily originates from three different areas:

1. Introduction of discounts that are more consistent with the customer’s value to Kompan.
2. A reduction in the number of ”pistol discounts” (discounts given without any particular evaluation of the customer).
3. A reduction in the many different hidden discounts that were common previously (in some cases, a hidden discount corresponded to a price reduction of more than 15%).
   
   

Simultaneously, the project has generated a number of derived results, e.g.:

• In connection with the project, more than 35 visible and hidden discounts were identified and analysed in the eight countries.
• The increased knowledge of the costs related to each order has resulted in various significant improvements in a number of central back office processes.
• The number of ”special orders” has been reduced as the actual costs related to a special order are now reflected directly in the cost price of each order.
• A greater understanding of Kompan’s price position has resulted in an increased focus on maintaining a number of critical price key figures for the company’s key products.
• The organisation has achieved a significantly improved understanding of the commercial importance of pricing and discounts.