Margin Optimization using price elasticity & sensitivity
Margin Optimization Using Customer Price Sensitivity & Elasticity Analysis
A large food ingredient manufacturer wanted to optimize margins by leveraging customer price sensitivities to achieve – higher volumes using minor price adjustments, shifting volume to customers willing to pay a higher price.
How much free attainable volume exists in the market?
Which customers can be targeted for increased volume?
How can we determine the minimum price penalty necessary for volume increase?
Price Sensitivity Analysis as a solution to lift margins
Price sensitivity was deduced by looking at historical customer buying patterns – products, volume, prices. This in addition to open customer requests were used to detect attainable free volume in the market.
A price – conversion simulation model was used to give recommendations on the optimum discount percentages to sales. This intel was used to shift volume to higher-paying customers while giving you more share of wallet on your lower-paying customers.
Price elasticity analysis
Price – conversion simulation
Automated free volume detection
-1/7th of the portfolio volume was identified as attainable
Price adjustments have yielded a net gain of roughly 1.2 million euros.