Pricing & Promotion
So many of the activities a firm undertakes to improve efficiency focus on controlling costs. Good work can have a nice impact on the firm’s bottom line. But pricing and promotion work affect the top line, where the impact is amplified.
Pricing science can be applied in business-to-business and business-to-consumer settings. The approaches vary a bit, and opportunities present themselves differently, but fundamentally the game’s the same: How to price items for customers so as to maximize return to the firm. This means understanding the price elasticity of each item and making judgments accordingly. Then the price elasticity curve can be used to induce the desired behavior. Generally that’s to increase sales, but occasionally it even means tempering customer demand in order to stave off an imminent shortage.
End-to-End’s team of pricing scientists can help you to apply the latest analysis techniques to your pricing problem. They can also help to navigate the business process elements to make the pricing science work most effective. Our pricing and promotion work most often addresses these topics:
Often the process to determine a customer's net price or discount is unclear and/or dispersed between many different decision makers. Customer profitability becomes unclear and margin is lost as similar customers end up paying different prices. Often the price in the marketplace is significantly lower than expected. We assist clients to:
Refine the pricing process
Give visibility to pocket price waterfall, showing true customer profitability.
Refine the process for price deviations reducing price leakage.
Measure their pricing compliance and performance
Measure gaps to plan identifying affected specific products, customers, or sales people.
Measure price and volume performance before and after a price change.
Of all the marketing variables, price most directly affects profitability. Yet many companies retain an outdated “cost-plus” approach to pricing, causing profitability to suffer unnecessarily.
Using our pricing models, companies can:
Set price to maximize profitability – or to achieve other business goals such as volume or revenue growth.
Study competitive behavior and anticipate competitive reactions.
Measure the impact of price thresholds (such as crossing an $X.99 price point).
Optimize the price “gap” relative to private label offerings.
Choose between Everyday Low Price and High/Low pricing strategies.
According to recent studies, spending on promotions by consumer goods companies now exceeds 13% of revenue. This dwarfs net profits, which average only 7%. Not surprisingly, finding efficiencies in promotion spend has become a top priority across the industry.
We work with clients to:
- Automate promotion post-mortems: How did each promotion perform in terms of lift, revenue impact, and ROI?
Automate promotion pre-mortems: How will planned promotions perform in terms of lift, revenue impact, and ROI?
- Determine optimal discount levels.
- Account for cannibalization on other products when planning promotions.
Identify where and when it is worth paying for in-store display and feature ads.
(i) http://www.acosta.com “The Trend Behind the Spend” (2013)
Pricing strategy should align and influence company goals. Through process and analytics, we assist clients to:
- Build a pricing department
- Determine size, roles, and responsibility.
- Interview and train new hires.
Interface pricing with other departments
Operations/Sales: Integrate pricing decisions with S&OP.
Marketing: Align pricing and brand strategy.
- Determine internal and external product positioning.
Revise pricing structure
Identify and remove discount programs that generate bad pricing behavior.
Build targeted discount programs (e.g. everyday low price, volume programs, rebate structures) to drive business goals.