fastEBIT | Delivering Rapid Margin Turnaround
For many organisations there will at times be a pressing need to rapidly improve margins; even perhaps at the cost of low quality market share. Our fastEBIT methodology has been built from the ground up to precisely address this need.
The pressures that typically squeeze margins between a customer and a competitor include:
Price transparency and awareness
Low cost imports
Undisciplined sales discounting
Under these circumstances rigorous pricing and statistical analysis can readily identify strategies for rapid margin improvement.
fastEBIT Re-Pricing | We don’t Over Estimate Price Sensitivity
One of the most effective and profitable margin turnarounds is a granular well-thought out re-pricing.
This will often require a sound grasp of structural price elasticity (i.e. how volumes and customer purchase decisions change with a price increase/decrease) and residual price elasticity (i.e. how volumes and customer purchase decisions will be impacted by the likely competitor response). Both of which should be calibrated to ensure any re-pricing is profitable and holds traction in the market.
The problem is that very few organisations have even a cursory understanding of these price elasticities. As such a simple price increase is almost always met with one or more of the following:
1 We will lose significant share/business/accounts/volume;
2 The competitors will not follow us and sales will collapse; and/or
3 Large accounts will not accept a price increase, now or never.
Yet a targeted, well researched and soundly executed price increase is still one of the most effective and efficient ways to achieve a rapid margin turnaround.
More than just negotiation skills, realising a judicious price increase requires:
1 An accurate and market-based estimation of the range of feasible price moves;
2 A projection of sales and profit (by segment) compared to business as usual based on structural and residual price elasticity; and
3 Methodical and comprehensive account planning (including customised margin defence scripts) to maximise in-field price realisation.
fastEBIT | Additional Sources of Rapid Margins
In addition to strategic and defensible re-pricing, fastEBIT methodically builds incremental margins through:
Re-pricing to the full value delivered i.e. minimising any pricing slack.
Rationalising, aligning, and optimising discounts and rebate structures (esp. in relation to major and large accounts).
Optimising tiered (or non-linear) pricing schedules to drive volumes, reflect price sensitivities, and maximise margins.
Identifying and eliminating ineffective discounts and rebates that don’t deliver incremental revenues.
Managing cost-to-serve by identifying and disbursing absorbed costs.
Identifying and unbundling valuable services and consulting; too often bundled-in to win sales.
Aligning cost-drivers with price-drivers to ensure charging and price metrics reflect customer expectations.
Re-configuring offerings for price sensitive accounts based on their researched willingness-to-pay and product/service preferences.
Identifying, diagnosing, and addressing outliers in rates/discounts/terms.
Diagnosing and improving sales force price efficiency.
fastEBIT | Analysis drives Success
A word of caution. While many of these incremental margin initiatives appear deceptively simple and intuitively straightforward; many will require a deep understanding of the pricing principles at their core.
In addition many will require quantitative research and analysis to optimise their structures.
Skipping on this crucial element will likely result in a loss of profitable revenue and share; and lead to customer dissatisfaction if implemented incorrectly.
While a well constructed pricing strategy will consistently deliver superior performance, at times organisations will be pressed to deliver rapid margin turnarounds.
To explore how your organsiation can reap the margin benefits of our fastEBIT methodology, with a minimum of market disruption, please contact us.