Our Pricing Volatility Playbook Helped a Market Leader Preserve Margins
IndustrialCo’s customers held a distinct bargaining edge, until the company turned to us for help.
Inflation may be easing, albeit with significant variation across regions, but the macro environment remains uncertain. Therefore, it’s imperative that companies build more resilient pricing structures and invest in capabilities that support superior pricing strategies—including, where relevant, dynamic pricing, innovative monetization strategies, and outcome-based pricing.
We recently helped a market leader in the industrial space to recoup lost margins and establish sustainable pricing capabilities by systematically taking them through our pricing volatility playbook.
A stagnant pricing structure and unfavorable cost environment in components procurement and skilled labor had been eroding margins at IndustrialCo*, an industrial design and manufacturing company. The company was a market leader, with perceived differentiation and stickiness with its customers for many of its solutions, but it lacked the capabilities needed to capture prices systematically.
Meanwhile, many of its customers had sophisticated procurement teams adept at pushing for higher discounts and resisting price increases. A significant share of its business entailed contracts with unfavorable clauses and pricing terms. A number of those contracts had been underperforming and leaking margins for many years, a situation that had become even more acute in recent years.
Working closely with IndustrialCo’s leadership team, we deployed key components of our pricing volatility playbook to design and implement surgical, time-sensitive price adjustments across the company’s catalog and contract business (see Figure 1). This approach enabled IndustrialCo’s team to set new catalog prices that balanced raising prices to an acceptable margin and reducing discount variability while mitigating risk (e.g., potential volume loss).
This structured approach included:
Assessment of the pricing-performance gap within the customer and product portfolios: Gather and analyze historical catalog data to understand current margin performance; discount variability and frontline behavior across like-for-like sales; and price increase opportunities across different customers and contracts.
Strategic alignment of pricing objectives: Conduct multiple strategy sessions with business leaders to align on pricing targets, on minimum margin levels, on which segments to push higher vs. where to preserve market share, and on what pricing tactics to use.
Classification of portfolio based on value differentiation and product life cycle: Categorize the portfolio by market position and life-cycle stage to assign value-based price multipliers.
Price modeling and redesigning of pricing architecture: Design a revised customer discounting schedule and price structure, and estimate and simulate economic impact and potential volume loss across the new pricing architecture and various price realization scenarios.
Refinement and iteration of price actions with key stakeholders: Conduct multiple workshops with sales leadership and account management teams to align on pricing actions and deployment plan; provide feedback on customer and product-specific pricing proposals; and identify key risks. This step was critical for building the sales team’s confidence and accountability for the price increase process.
Systems enablement to support deployment: Identify necessary system adjustments required to support the change in pricing architecture. The IT team implemented these system changes in an agile fashion, with business leaders reinforcing a sense of urgency.
Training and communication: Conduct workshops and negotiation prep sessions to provide business, macro, and specific customer context for the sales team on the need for price adjustments. Equip the sales team with talking points for the price increase and key pricing metrics, including discount variability and margin performance, by product and customer characteristics.
KPIs, tracking, and continuous refinement: Measure the progress of the rollout of price actions and regularly take the sales team’s pulse, which allows companies to respond in real time. The IndustrialCo team set up dashboards and KPIs at an aggregate level to track overall progress and results at a granular level.
IndustrialCo’s surgical pricing approach and redesigned pricing architecture leave it solidly positioned to achieve its margin upside target. Even more importantly, these new pricing capabilities will enable the company to generate sustained value; for example, the sales team is now better prepared to conduct complex negotiations, and management has agreed to invest in a dedicated pricing function.
As IndustrialCo learned, the first step in designing a more resilient pricing strategy and capability is for companies to assess their starting point in terms of pricing capabilities, market positions, and risk factors. This enables them to prepare a prioritized short-term response and also outline the mid-to-long-term journey ahead. Our Pricing Value Roadmap has proven invaluable. The four- to eight-week, action-oriented assessment focuses on finding and capturing value, and provides a tailored and executable work plan based on each company’s specific needs and opportunities.