Pricing Optimization

Overview

Callidon works with clients to develop pricing strategies that maximize the return from products and services. We apply a variety of approaches based, for example, on whether the price for the product / service is the subject of individual customer negotiations or fixed for a customer segment. In all cases, our approach is highly analytical, with a focus on price elasticity modeling and identification of the drivers of successful outcomes.

As with all our engagements, we work closely with management to develop pragmatic approaches to implementation. We have a thorough understanding of the challenges associated with communicating price changes to customers.

Strategic Challenges

Most organizations do no think strategically about pricing. Many organizations are paralyzed by the fear of making a bad pricing decision and as a result abdicate pricing decisions to their competitors. These organizations frequently suffer from poor industry price structures as well as price plans that fail to optimize the return from their products and services.

At the same time, pricing is one of the most powerful business improvement levers and one of the few levers that can have a dramatic bottom line impact within the first year of a new strategy being implemented. Successful pricing strategies require a thorough analytical approach in order to understand the relative value proposition of competitors’ products. This allows prices to be set such that consumer surpluses are minimized: prices are matched with what customers are truly prepared to pay, such that money is not left on the table.

Successful pricing strategies balance the desire for simplicity with need to create a strong rationale for the prices customers are paying. Often, sophisticated structures are required to minimize the transparency of any price increases.

In markets where prices are negotiated with individual customers , organizations frequently delegate too much of the price setting to sales reps, with valuable sales time then spent negotiating discounts with the home office rather than maximizing customer revenue. Often, this leads to price inconsistency across like customers, highlighting to the market the value that can be extracted from more aggressive price negotiation and undermining the entire pricing structure.

Activities

For Negotiated Products / Services:

• Model drivers and factors of success and unsuccessful price negotiations by customer segment
• Analyze success of current pricing process to achieve consistent prices across the appropriate customer segmentation scheme
• Estimate consumer surplus by product and services
• Analyze negotiation process and skill set of negotiating team
• Determine price / value of competitor and substitute products
• Develop predictive model for price negotiations

For Non-Negotiated Products / Services:

• Model price elasticity by customer segment and estimate impact of price increases on units sold and total revenue
• Develop and conduct customer conjoint analysis to optimize price levels by customer segment
• Model impact of alternative pricing structures and strategies on units sold and total revenue

For all Products / Services:

• Develop plan to launch pricing model including, as appropriate, segment, market or product based pilots and detailed communication strategies