When a consumer durables manufacturer wanted more control over pricing
Deloitte Analytics helped them uncover opportunities worth millions
Frequent price exceptions can lead to too many underperforming deals. That was a growing concern for a US$7 billion consumer durables manufacturer, which realized it was losing control over exceptions. It knew it was time to transform its pricing strategy and processes with the support of new policies and tools.
The primary problem was that exceptions – both one-time order exceptions and short-term price exceptions – were high and had become a widely accepted practice. Pricing authority was decentralized with various regional sales vice presidents. Sales had few pricing policies and no existing effective means to enforce them, resulting in significant margin leakage in payment terms, claims, rebates, samples, and service. Beyond that, customer profitability was difficult to view. Leadership could not view the overall picture of a customer’s performance, especially considering all elements of their relationship.
To address these issues, the company turned to a member firm’s Deloitte Analytics team for an end-to-end price management solution. By taking advantage of the Pricing and Profitability Management Practice, the member firm’s client would be able to more effectively manage and leverage all three phases of the pricing life cycle: analytics, price management and deal management.
The challenge called for a broad solution in four key areas of pricing: strategy, people, processes, and systems. The problem was broken into manageable parts, with early phases supporting one business unit, and later phases expanding to other units. The guiding principles were to affect a large enough scope to deliver measurable margin improvement, while taking a ‘crawl-walk-run’ approach to help manage the complex change, and deliver business value in a series of 100-day wins.
How analytics helped
The results have been significant, and measurable. Just weeks after rolling out an innovative solution for real-time management of order-price exceptions, the member firm client was already adding dollars to its bottom line.
Less than a year after implementing an analytics module, the member firm client uncovered US$50 million in profit-improvement opportunities, and was on its way to realizing some US$4 million of benefit by executing on these opportunities. What’s more, further value was added by addressing other critical streams – including pricing policies, customer segmentation, brand positioning, training, and change management.
The project also implemented process and policy recommendations to improve overall business practices in freight, payment terms, and loads/rebates. For example, enforcing CFO approval on any freight waiver is expected to provide US$600,000 in profit. Eliminating unprofitable payment terms, and consolidating terms into more manageable numbers, should deliver up to US$2 million in profit. Going forward better visibility to rebate programs is expected to result in several million dollars in profit improvements.