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Seize new pricing opportunities
GtN spend optimization cushions pricing volatility
Pricing volatility continues to be a key focus for commercial teams, with many organizations successfully executing list-price increases. But these are expected to be more challenging as customer price sensitivity increases. Evaluating gross-to-net (GtN) spend optimization can provide another lever for often overlooked pricing opportunities.
- Create a GtN strategy business plan
- Seven principles of gross-to-net spend optimization
- Driving execution through sell-in
- Join the conversation
Create a GtN strategy business plan
During uncertain economic times, trying to change existing allowances or agreement conditions is often viewed as a risk by both sellers and retailers. In many cases, these agreements and conditions, designed and implemented at a specific point in time, eventually become obsolete due to shifting market dynamics or proliferate into a “stack” of duplicate conditions—products of M&A “inheritance.” This results in a stagnated dynamic in which a larger proportion of commercial spend becomes a default cost of doing business, not a performance-driven investment.
We find that typically up to half of an organization’s commercial spend—the various investment vehicles between gross and net price, including discounts, promotions, rebates, etc.—has improvement opportunities that can result in top-line growth, incremental return on investment (ROI), or operational efficiencies. Revisiting these investments can boost revenue and improve margin, eliminating (or complementing) the need for list-price changes. At the same time, redesign of commercial investment vehicles can better align outcomes with strategic objectives:
- Simplicity and clarity on joint goals and outcomes with customers.
- Reduced complexity of partner programs.
- Shifted investment from “fixed” dollars to “variable” investments based on partnership and performance.
- Shifted sales mix toward premiumization and higher margin, more strategic products and categories.
These value levers can drive measurable financial impact, typically at least 1% to 2% in incremental revenue and 5% to 10% in addressable-spend ROI improvement.
Seven principles of gross-to-net spend optimization
We have identified a common set of design principles on which to evaluate and redesign GtN investments:
Driving execution through sell-in
A solid sell-in story is pivotal to materializing identified opportunities. Typically, these changes should be presented to customers not in isolation but in consideration of other levers that influence the account strategy, such as organization-wide list-price changes, assortment and line planning, and other commercial terms in place. We have seen organizations succeed when revenue growth management (RGM) and customer account teams work collaboratively to develop cohesive, customer-specific sell-in stories supported by a data-backed case for change and easy-to-communicate models that outline financial impact across multiple scenarios. As we continue to see “here to stay” market pressures, organizations will be expected to advance their commercial capabilities to reallocate and optimize spend to boost revenue and relieve margin pressure.