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Case study

How a Medical Device Maker Transformed its Pricing Capability

Despite raising its list prices each year, a medical device manufacturer was failing to capture much of the anticipated increased revenue due to a variety of pricing challenges. We worked with DeviceCo* on a nine-month program to identify and address this critical aspect of its business. The effort produced immediate impact, with an EBITDA increase of approximately 4% within the first nine months and a committed set of actions to increase it by ~8% over 18 months, propelled by a seismic shift in company culture around pricing.

  • min read

At a Glance

  • 4% EBITDA increase in the first 9 months
  • 8% EBITDA increase expected over 18 months, based on a granular and committed execution plan of price increases and discount re-alignment actions

The Full Story

DeviceCo faced a number of pricing challenges, from high variability in discounting to multiple sources of price leakage to shifting industry dynamics that changed the balance of negotiating power. Contract renewals were often late and typically failed to include price escalation. The company had limited analytics and tools for assessing these and related issues, and it faced organizational issues as well: sales reps controlled much of the discounting decision-making, resulting in some low-volume clients receiving larger discounts than those spending ten times as much.

We worked with DeviceCo to confront these issues with a three-phase plan that produced both immediate and long-term benefits. The engagement began with our proprietary diagnostic, which combined an analysis of DeviceCo’s transaction data and interviews with key stakeholders. This effort uncovered the potential for an approximate ~7% revenue lift from standardizing the company’s discounts and taking targeted price actions. We proposed four focus areas: clear deal logic, the establishment of efficient approval routing, implementing new tools, and supporting these efforts with a robust change management program.

Key Drivers of Success

The program focused on critical value levers that would have a material impact on DeviceCo’s financial performance, including:

  • The development of a dynamic deal guidance model that takes into account product, customer, and competitive factors
  • A process for increasing the number of well-informed and aggressive reviews of both annual list price increases and course-of-business discount approvals
  • Improving customer, product, and rep-level visibility so that management can identify and address opportunities and areas of weakness
  • Closing governance and process loopholes that were letting price leak away
  • Increasing the level of attention paid to contract negotiations, to ensure prices are escalated on time and with maximum lift

We supported those efforts by building three operational tools that support pricing discipline: a discount approval tool that provides price setters and approvers with strategic inputs on customer, product, and competitive characteristics so they can make well-informed pricing decisions; a contract tool that notifies the sales team about expiring contracts and evaluates proposed pricing; and a pricing re-alignment tool that provides sales with a scorecard to help identify pricing opportunities and potential misalignment.

In addition, we developed dashboards to aid monthly pricing reviews by providing visibility down to the level of individual sales reps, as well as a deep-dive Excel tool that facilitates ad hoc analysis of underlying issues.

A system of regular pricing reviews now enables DeviceCo to analyze pricing and make key decisions around pricing strategy. And incentives are now aligned so that pricing is a top-of-mind focus for sales reps and sales management.

To ensure that DeviceCo developed the internal capabilities needed to build on the initial success of this nine-month program, we provided more than 65 hours of training comprising formal presentations, bi-weekly office hours and integrated exercises across all relevant group (IT, data management and sales). Roles and responsibilities were clearly defined, to ensure a smooth transition, and we helped the company evaluate and select a robust long-term pricing tool that can support its new pricing discipline.

 

* We take our clients' confidentiality seriously. While we've changed their names, the results are real. 

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