Pricing Strategy Case Study: Manufacturing

by Kalypso on April 26th, 2009

Objective
A leading specialty chemical company and manufacturer of adhesives and coatings wanted to optimize profitability. The company's existing pricing structure was inflexible and hurting overall profitability. The client wanted to rethink its pricing model and propose a new pricing strategy.

Solution
When the client turned to Kalypso for help, it had not increased its prices for eight years and more than half of its customers were unprofitable. The client's pricing structure was inconsistent across its customers and products, not well understood by product managers, and informally managed at the executive management level.

Kalypso collaborated with executive management to re-segment the customer base and develop a price increase strategy based on this new segmentation. As part of this project, Kalypso also developed pricing strategy guidelines for Product Managers. Scope included:

• Analyzing customer and product profitability relative to Profit Before Tax levels
• Segmenting customers according to product purchase criteria and profit contribution to the business
• Developing a price increase strategy based upon customer profiles and segmentation
• Creating interim price band tools and managing IT system specification development
• Executing and coordinating the recommended price increase strategy
• Establishing a Product Line Management function and initiating pricing guidance and control refinement processes

Results
After implementing the new pricing strategy model, the client saw revenues increase by 2% in the first year and net profitability improve by 14%. Today, the client uses pricing as a competitive tactic.

Topics: Case Study, Manufacturing, Pricing, Value Management