What Gets Measured Gets Done

One of our large, multinational clients was aggressively addressing the discounting culture pervasive in the organization. With various verticals, multiple product lines and more than 10,000 customers they were struggling to measure the effectiveness of the various pricing initiatives and identify areas to prioritize efforts for maximum impact. Because of the magnitude and complexity of the organization, they got stuck in the weeds with day to day problems.

We used some basic analytics to understand the holistic picture of the effectiveness of the initiatives and to help decide the direction of future price change.  Here are 4 simple reports we created and recommended they repeat on a regular basis:

1. A simple price plot –we created a dual axis graph with list prices and realized prices on the dual y-axes and volume on the x-axis. The price plot helped us understand the actual discounting currently in the organization across the volume band and uncover the areas of opportunity by vertical and product.
2. A Year over Year comparison of revenue lost from discounting by vertical. This showed how well the pricing initiatives were performing by vertical and overall in terms of dollar profit.
3. A revenue waterfall analysis to understand changes from the previous year at a more detailed level. How much revenue improvement was contributed by vertical, by small customer vs large customer, by list price increases, by reduced delegations. It also helped uncover where the initiative effect was maximum and minimum.
4. A Pareto analysis to understand the top contributor to revenue improvement by customer and vertical versus budget, Year over Year or Quarter over Quarter. This helped us understand the top verticals and clients to focus on.

We shall focus on individual analysis, its variations and implications with greater depth in future weeks. With some simple analysis and reporting in place, you can understand and share your pricing initiative results with other organizations and your executives. We recommend that you put in place basic analytics and reporting that can be repeated on a regular basis. In the long term, these simple reports will allow you to be more proactive and be able to prioritize your limited resources on the areas of greatest return.  With more transparency in the results, pricing and sales can collaborate on targeted effort to gain maximum benefit for the company.