Unlocked an annual profit opportunity of $15.6 million
Simplified customer segments and created more succinct, intuitive 15 segments, instead of the pre-existing 38 segments
Tailored optimal pricing for each of the 100k customers across a portfolio of approximately 7k products
Problem Statement
The client, a global distributor for plumbing supplies, sold products to over 100k customers, in just one demographic, Texas, and just within 2 years. The pricing team of the company had to ensure that all products in its extensive portfolio were being sold at the right price structure.
However, the sales team had the ability to negotiate these prices with the customer, and in instances, could even override the centrally recommended price set by the pricing team. As a result, 50% transactions and 70% revenue were attributed to products sold at a price other than the centrally recommended price.
Adding further complexity to this was the fact that the customer was using a legacy framework of 38 customer segments to implement its pricing strategies. These segments had been created over time, based on subjective and often inconsistent inputs from the field sales.
Approach
To optimize product level pricing, four key steps were undertaken by TheMathCompany:
A deep understanding of nuanced aspects, such as pricing of a complex business, was developed
Customer segments were created such that they were both mathematically sound and intuitive to business stakeholders
Price elasticity was modelled for each product-customer segment
Price simulations were run to quickly zero in on the optimal price
Once the optimal prices were finalized, they were tested in the field, using carefully designed price experiments. Upon experimentation and market simulation, the most-suited pricing structure was identified.
Solution
Here’s a deep-dive into the multi-step solutioning process undertaken by TheMathCompany to determine optimum pricing structures:
