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.

Challenge

Understanding free attainable volume & necessary pricing penalties

Business Management wanted to understand:

  • 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?

Approach

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.

Methodologies 

  • Price elasticity analysis
  • Price – conversion simulation
  • Discount Recommendations
  • Automated free volume detection

Results

  • -1/7th of the portfolio volume was identified as attainable
  • Price adjustments have yielded a net gain of roughly 1.2 million euros.
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