MegaCompute* had traditionally competed on price, but changing market conditions and a complex corporate structure made it necessary to adapt.
MegaCompute became a major player in the corporate PC market by offering fastest time to market on new technologies at the lowest possible price.
Recent market conditions caused PC prices to fall rapidly and competitive pricing pressure to increase. Customers have responded by avoiding long-term contracts and asking that prices be indexed to market price decreases.
MegaCompute discounted by negotiating each sale individually -- driving up the cost of sales. The company also experimented with contracts tying price to an underlying component cost index that declined over time ("price assurance"). Despite these efforts, high list prices deterred some new customers from considering MegaCompute for its PC needs.
The company had difficulty in developing a coherent response to pricing changes, since it has eight business units facing significant differences in competitive dynamics and customer buying behavior. Bain was asked to help develop a new pricing strategy to address these problems.
Bain took apart MegaCompute's existing price assurance model and created a fact base with which to build a new list pricing strategy.
By focusing on a refined list pricing model, MegaCompute can attract target customers and build profitable relationships with them.
MegaCompute moved to segment-specific list pricing soon after Bain's presentation. In the business unit that adopted the new pricing model, growth exceeded targets.
* We take our clients' confidentiality seriously. While we've changed their names, the results are real.