Kalypso Viewpoints

Pricing Model Case Study: Petroleum and Chemical

by Kalypso on June 7th, 2009

Objective
A leading petroleum and chemical company was experiencing a rapid decline in profitability due to increasing raw material costs. While the company's existing pricing model had a wide range of variability, prices were often misaligned with the increasing costs of raw inputs. The client had entered into long-term, fixed-price contracts - preventing it from responding to competitive pricing pressures -and wanted to revisit its pricing structure to improve profitability.

Solution
Kalypso was engaged to audit the client's existing pricing structure and provide strategic recommendations on how to adopt more efficient and flexible pricing. We worked closely with the client on assessing the pricing structure and identifying specific improvements that could optimize profitability. Scope included:

• Analyzing net profitability by account
• Recommending contractor options and modifying contracting terms
• Identifying price targets, including formulation of walk-away prices for unprofitable customers
• Orchestrating a price increase campaign and providing training to the sales team on how to implement
• Creating an indexed price strategy to enable flexible pricing
• Implementing improved pricing reporting and monitoring processes

Results
The client has achieved impressive results by adopting Kalypso's pricing recommendations. Today, the client has a flexible pricing structure that has enables the company to respond to market changes and optimize profitability. Within 3 months of implementing the new pricing model, the company improved division revenues by 16%.

Topics: Energy, Pricing