New pricing process and product introduction
For this organisation, the majority of business was conducted through distributors and importers. Many of these distribution companies had been in business many years and had a long-term relationship with our client’s local teams. As a consequence of these long-term business relationships, pricing was effectively customised for each of the distributors. While there was consistency within countries, there were often small differences between adjoining markets. These small differences led to an individual price list for each distributor, making the implementation of a price increase a nightmare as over 200 individual price lists had to be created, checked and uploaded to the ERP system.
With a new, pan-European ERP system planned, this structure was no longer sustainable and BIC were asked to lead a project to create a process that ensured simple administration and implementation of pricing that avoided the need to maintain individual price lists for each distributor. While this appeared straightforward enough, it was soon apparent that a more fundamental review of pricing was required: one that considered all aspects of pricing, from brand / sub brand positioning, customer segmentation, value pricing and product lifecycle. An urgent project was identified as a test case. A new product range was due for launch but due to the lack of a clear agreement on pricing across the business, pricing still wasn’t defined and the commercial organisation was not confident that the product would be successful. To accomplish this, BIC was asked to support the launch with an interim pricing manager.
Information
- Client: International Coatings Company
- Location: Northern Europe
- Date: 2018
- Category: Pricing and Margin Optimisation
• Inaccurate cost data • Sorting and separating information from long-held assumptions • Detailed analysis of existing pricing relativities between brands, sub-brands and products • Validating market price points (not done for many years) • Overcoming resistance to centralising the key function of pricing
Our consultant approached the challenge as a series of ‘SPRINT’ activities. Sprint 1 was to define the cost structure of the new products. Between the decision to proceed to production and final launch, there had been cost changes to raw materials and changes to cost allocations within production. Not all these changes were correctly allocated in the ERP system and corrections were being journaled at the end of each accounting period. Sprint 1 was led by one of the in-house commercial excellence analysts working with the cost accountants at the production facility. Sprint 2 was led by the interim pricing manager and focused on mapping the positioning of the products being replaced compared to the ideal positioning defined in the brand strategy. Unfortunately, this had not been reviewed for many years and, due to the pricing freedom at country level, many large inconsistencies had developed. Sprint 3 was led by one of the product marketing team members and focused on desktop research to verify the market positioning of competitor products. Usually we would recommend that this research be done in the market through a series of field visits and customer interviews; however, the urgency of the project dictated a different approach. Sprints 1, 2 and 3 were conducted in parallel. Sprint 4 was a focused workshop, led by our consultant, comprising the Interim pricing manager, commercial excellence analyst and the lead product manager, where the gathered material was assessed and final pricing decisions were made. Costs, positioning and any performance improvements were all considered. At regular intervals throughout this sprint, marketing, finance and sales directors were updated to ensure alignment and understanding (and acceptance) of some of the more difficult decisions taken. Because of the cost, positioning and other issues, some countries found the final pricing to be quite different from what had been expected at the beginning of the product development project. To support this, we helped the interim pricing manager prepare a detailed briefing to enable the sales teams to explain the new pricing structure to distributors.
Following Sprint 1, pricing for the new product range was accepted by the sales organisation and the market. • Margins 10 – 20% above launch expectation (5 – 10% above initial plan) • The pricing management process was re-engineered with a single person appointed as accountable • The role of each function in setting and maintaining pricing was defined and a RACI was developed to ensure each role and responsibility was clear • An ‘ideal pricing’ picture was developed with an action plan signed off by all business functions to move pricing and price positioning closer to the ideal over a series of steps