Case Wholesale trade

5–7 % EBIT improvement potential with new pricing and discount models

About the company

The company is a leading wholesaler in their specific industry. Clients are offered versatile and customized service models with a strict focus on quality products and customer-centricity.

  • Company size: >100 MEUR
  • Personnel: >100 employees
  • Over a dozen wholesale locations along with logistic services providing to clients all over the Nordics.

Challenge – Simplifying a complex discount structure and bringing more transparency to customer margins

With stagnant growth during the past years, the company saw an excellent opportunity to focus development efforts on restructuring the current discount model and bringing more clarity and predictability to customer profitability.

The company operates in an industry with typically small margins and large volumes. This also justifies the need in building a solid foundation for transparent and rationalized discount structures across the board to ensure profitable customers now and in the future.

Also, the company was looking forward to acquiring a pricing tool in the near future to streamline pricing processes both for sales and pricing management. The project worked as a basis for making a decision on which pricing tools to consider among multiple potential vendors.

Capacent was chosen as the partner to tackle the challenge due to a strong track record in pricing related development projects as well as by offering a hands-on approach.

Goals of the project and what was done

The goals of the project were laid out in the beginning of the project in-line with the current challenge:

goals of the pricing project

 

In order to reach the defined goals, the project consisted of the following steps: 

  1. Fact-based analysis of the current situation 
  2. Building a coherent discount structure  
  3. Decisions on discount structures and price levels
  4. Prioritizing actions and planning the implementation
  5. Following up on progress and measuring change

 

1. Fact-based analysis of the current situation

To be able to construct a coherent pricing and discount structure, a deep dive analysis of sales and customer data was necessary. A helicopter view was first generated to pin-point the areas which had the highest potential for margin improvement.

Also, by mapping all pricing and discount elements that effected margins, it was possible to identify new potential improvement areas. These typically had not received sufficient attention e.g. due to lack of data or simply because they had been previously overlooked as not being relevant in the big picture.

 

A margin waterfall neatly illustrates this:

Margin waterfall of sales

 

Spread among customers was analyzed in order to better understand how margins are distributed among customers within customer segments: 

Discount per customer segment

 

Formation of price and discount levels per client size  were analyzed to better understand the magnitude of discounts within and between customer segments: 

Price formation per customer segment

In addition, dozens of separate analyses were conducted going deeper into customer segments, product segments, geographic locations, discount types etc. to gain a holistic view of the current situation. 

 

2. Building a coherent discount structure

After a thorough analysis of sales data and workshops with key stakeholders, the next step was to assemble a newly formed pricing and discount structure with two key objectives:

A) Add structure and manageability for smaller clients
B) Ensure the salesforce has the ability to adjust prices and negotiate with relevant terms for larger clients

To ensure these objectives would be met, two key improvement areas were identified:

1. Automating initial price and discount levels for different customer segments according to preset rules.

This would allow the salesforce to utilize their time more efficiently when dealing with a high volume of price quotations, as well as ensure profitability levels would be in-line with the company’s predefined goals in different customer segments straight from the beginning of new customer relationships.





2. Bringing transparency on the forecasted margins to the salesforce with the use of historical sales data.

By utilizing historical sales data, we were able to model and simulate potential sales and profitability levels in a highly diverse customer base.

Afterall, the salesforce usually receives its bonuses from a combination of absolute sales as well as margin contribution. This was also the case here, and by bringing better transparency and predictability to your personal bonuses is a huge motivation booster for any sales representative.

 

 

3. Decisions on discount structures and price levels

A one-size-fits-all-solution is hardly ever the outcome or even the goal of a pricing development initiative. Not every stakeholder can or will be completely satisfied with the new proposed structures as then it will seldom yield the desired results the project looked to accomplish in the first place.

Also in this project, a lot of debate was conducted on e.g. where to draw the line between customer segments, desired margin levels and compensation policies. Discourse was however well facilitated and backed by hard facts as well as simulations to accelerate the onboarding of personnel and leaving less room for feeling based decisions.

 

4. Prioritizing actions and planning the implementation

Once decisions were made, a scheduled plan was formulated on which actions to take and in what order. The needed actions are usually plentiful (as they always are), so high-impact changes that don’t create too much turbulence were prioritized.

It is good practice to make an action log, assign different people in charge of different initiatives and schedule for the needed changes so that your stakeholders are aware of improvements that are underway and what to anticipate. By involving different functions and keeping an open channel of communication you will make the change a team effort – not just something pushed by top management.

5. Following up on progress and measuring change

By creating development streams and assigning stream leads the development work was set to take off. In addition, relevant KPI dashboards were created in a BI reporting platform to monitor and track progress. This ensured that the types of analyses created in the first phase of the project wouldn’t remain as a one-off view in a certain point in time, but that change could be truly measured now and in the future.

The intended change would impact a large part of the organization, so by building relevant tools for tracking progress it simultaneously helped in spreading knowledge and implementing the transition within the company.

 

Change management

 

“I would definitely recommend working with Capacent. The entire project was very practical, fact-based and the high level of expertise definitely stood out.”

Commercial Director

Results – 5–7 % potential identified in EBIT improvement

The concrete results of the development project were that the means to improve the growth of profitability were identified, documented and prioritized. A long-term view was created along with the creation of excel-based pricing tools, KPI dashboards and directly implementable processes to address the immediate needs of the organization.

 

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Shall we improve your pricing and discount models, too? Book a meeting with Maria Åberg or send us a message and let's talk more!

 

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