Value Based Algorithmic
Generate 200 – 900bps of margin expansion to drive EBITDA growth.
- Are your margins and earnings under pressure?
- Do you need to implement a price increase in the next 90-180 days?
- Do you need to simplify your pricing and discount architecture?
What is Value-Based Algorithmic Price Optimisation?
Value-based algorithmic price optimisation is a sophisticated approach to pricing that will address these key challenges and deliver between $2.0M and $9.0M for every $100M of revenue optimised.
Incremental EBITDA is generated using a combination of data science, statistics, and qualitative data sets. This level of detail identifies pricing power at a material line item or SKU level across an extensive range of products and unique customers.
Algorithmic pricing will enable you to identify margin opportunities to generate cash earnings growth without risking sales revenues.
Immediate margin expansion and earnings growth can be realised within 8 -12 weeks.
You may already be experiencing the following margin risks in your business:
- Illogical and inconsistent price architecture
- Channel and customer price conflicts
- Cost-plus price setting methods that result in missed margin or lost sales revenue due to overpricing
- Inability to implement effective price increases
- Uncertainty of earnings growth
Why undertake Algorithmic Price Optimisation?
Benefits of using value-based pricing algorithms to optimise prices:
- Set the right price for each product or service to each customer to maximise revenue and profitability
- Develop logical pricing structures and avoid margin erosion
- Optimise customer price levels to maximise revenue and margins
- Greater confidence to negotiate pricing with customers
- Generate new business and retain existing customers at higher margins
- Reduce time spent evaluating tactical discount requests
Which industries are suitable for Algorithmic Price optimisation?
Any business with more than $50M in annual revenue and more than 500 unique SKUs or materials is an ideal candidate for value-based algorithmic price optimisation.
Suitable industries include:
- Automotive aftermarket
- Building materials
- Capital equipment
- Electrical components
- Healthcare consumables
- Wholesale & Distribution
Value-based algorithmic pricing optimisation 10-step approach
- Initial discussion
- Initial enquiry and phone discovery session
- Value analysis document and proposal for diagnostic due diligence issued
- Diagnostic due diligence [4 weeks] – 24 months of data required by SKU or material, by day and by customer
- Evaluation of sales data and pricing model, evaluation of systems capabilities
- Project plan and initiation document published
- Algorithmic design & development
- Price optimisation implemented on a broader scale across the business
- Pilot testing in your market [4-6 weeks]
- Weekly results tracking, monthly steering committee oversight, evaluation and additional margin expansion opportunities identified
Is algorithmic pricing effective?
The Pricing Insight price optimisation solution combines data science with your team’s deep knowledge of products and markets.
By using both qualitative and quantitative methods, the algorithm identifies pricing and margin opportunities that would be missed by a purely historical sales data driven approach.
What can I expect if I engage Pricing Insight?
Pricing Insight employs a 7-step process to develop an algorithmic pricing solution:
- Data and pricing operations diagnostic
- Opportunity assessment and EBIT prize identification
- Development of a value-based pricing algorithm
- Testing and validation
- Implementation and profit generation
- Post –implementation analysis and review
- Additional price optimisation opportunities captured
This approach ensures a thorough and robust assessment of all risks and opportunities has been undertaken.
Do you guarantee the process?
Yes. We provide a minimum EBITDA gain guarantee which is determined in the diagnostic phase of the process. This guarantee transfers project risk and accountability to Pricing Insight. As a result, we undertake robust due diligence on prospective projects to ensure that a prospective client is an appropriate candidate for price optimisation.
Have you worked in my industry before?
Pricing Insight has worked with over 115 companies, across B2B and B2C markets. We have deep experience in the following industries:
- Automotive Aftermarket [Retail And Wholesale]
- Building Materials [Manufacturing, Wholesale And Retail]
- Distribution And Wholesaling
- Electrical Components
- Food Manufacturing
- Healthcare Consumables
- Machinery Equipment Manufacturing
- Office Equipment And Consumables
Every company has its own set of unique challenges and opportunities. Our framework and methodologies uncover pricing risks and margin expansion opportunities for a range of business models, including OEM, distributors and retailers.
How long does the process take?
It takes approximately 12 to 16 weeks to complete all seven steps of the price optimization project. Timelines can be accelerated, depending upon business priorities and windows of opportunity.
How Corporate Express [Staples] found $6.8M on $80.0M of addressable revenue
Pricing Insight was engaged to assist Corporate Express in migrating its price lists to a new SAP system. Corporate Express had been growing their revenues of over $1.0B at 5% per year for over 10 years when they began to experience earnings decline.
After undertaking a detailed analysis of their pricing, it became apparent Corporate Express was experiencing margin erosion for the following reasons:
- Cost-plus mark-up pricing practices
- Excessive discounting to match perceived competitor prices and
- Poor price relativities between branded items and private-label brands
Pricing Insight analysed prices across 5,000 individual items. Pricing Insight identified hundreds of examples where the Corporate Express product range was 5, 10, 20 and sometimes 30% cheaper than competitors. Once the new optimised price list went live into the market, Corporate Express began generating an additional $570,000 in EBITDA each month.
The net benefit to Corporate Express after 12 months was $6.8M+. In years 2 & 3, further margin expansion was realised as Pricing Insight worked with Corporate Express to develop a dedicated pricing function. Pricing Insight designed a new pricing function, created job descriptions, sourced executive pricing talent, and trained them in advanced pricing skills to drive additional revenue and margin growth. Over 3 years, Corporate Express realised an additional $21M in EBITDA through price optimisation.