Our client was faced with increasing costs that, eventually, made a price rise unavoidable. To preserve profit, they planned to increase costs across the range by 10%.
They came to us for advice.
We forecast that a blanket price rise of 10% would reduce revenue by 3%
Instead of doing this we argued, backed up with insights from the models we built, that they should vary the price rise by product line. Each product responded differently to price, and by taking advantage of this difference, the price rises could be put through to achieve the profit goal, whilst actually increasing revenue by 7%. By reducing the losses, not only did the client benefit directly through greater sales, but there was a secondary benefit of being able to spread their fixed costs of production across a larger volume, lowering their average costs.
We went further. We built, from scratch, a bespoke pricing simulation and optimisation tool, and linked it to the client’s P&L. This allowed us to calculate the optimum pricing strategy, and allowed them to simulate the impact of alternative strategies.
This helped them arrive at the right price decisions across the business to maximise the profit gains, whilst minimising volume loss and risk.