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.
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?
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
- Discount Recommendations
- 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.