Specialty Chemicals Manufacturer
Optimized Pricing Systems to Enhance Data Integrity and Minimize Leakage
Enhancing Pricing Accuracy: Reducing Price Leakage with Data-Driven Solutions
A specialty chemicals manufacturer implemented a price management and quoting tool to improve data integrity, mitigate price leakage, and achieve a 2.5% revenue impact.
Managing pricing and cost changes effectively is critical for profitability, yet a specialty chemicals manufacturer struggled with limited tools and processes to optimize pricing decisions. Issues such as incorrect price orders, zero-price transactions, and inconsistent price realization led to revenue leakage and inefficiencies. To address these challenges, the company developed a structured price management system, leveraging a marketing and sales engine to calculate recommended price corridors. By improving price-setting accuracy and enhancing communication with customers, the company successfully mitigated price leakage and realized a 2.5% impact on addressable revenue.
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Situation
Lack of Pricing Processes Led to Revenue Leakage and Inefficiencies
- Client had limited processes and tools in place to effectively manage price and cost change across the business (e.g., Managing cost increases across the business, price realization, zero price orders, wrong price orders
- Client was challenged to find the “right” price for customer and product combinations here value was differentiated
Discovery
Initial analysis of data showed low price realization, along with high levels of invoice discrepancy
Approach
Implementing Data-Driven Price Management to Strengthen Profitability
- Led a discovery to understand customer and product segmentation, as well as drivers of price leakage
- Invoice discrepancies were investigated to identify magnitude and source
- Designed and implemented a marketing engine to calculate a recommended product pricing corridor
- Designed and implemented a sales engine to calculate recommended customer and SKU level pricing
- Developed systems to efficiently set prices and communicate them to customers
Sales & Marketing Engine
Marketing Engine
Calculates recommended product pricing corridor
Set Base Corridor
Segmentation + Cost Basis Adj.
Determines product level pricing using a multitier escalation peer grouping algorithm with forecasted cost to produce region, application, and product level tailored price ranges
Adjust for Strategic Decisions
Product-Level Price Adders
- Elasticity
- Region
- Product Reach & Tier
- 7 additional adders not yet activated
Execute Controls
Product Floor Constraint
Ensures price corridor never falls below product floor pricing
Sales Engine
Calculates recommended customer-SKU pricing
Set Base Rec. Price
ML Algorithm + Cost Basis Adj.
Determines existing customer product pricing strategy and combines with forecasted cost to provide a base price
Adjust for Strategic Decisions
Previous Product-Level Price Adders, Customer-Level Price Adders
- Customer Tier
- Purchasing Breadth
- Sales Channel
- 2 additional adders not yet activated
Execute Controls
Minimum Price Constraint:
Ensures prices never fall below marketing corridor
Recent Transaction History:
Margin is maintained or increased
Increase Caps:
Constrain increase %
Turning Pricing Strategy Into Profit
Strong pricing perception and competitive advantage across metrics
