VALUE RECOVERY METHODOLOGY

A methodology for swift and risk- adjusted recovery of margins

ARE YOU SUFFERING FROM MARGIN LEAKAGE & VALUE DESTRUCTION?

Often times, companies accumulate waste and inefficiency during periods of economic well-being. In times of financial and economic uncertainty, it becomes critical that companies identify  these leakages and inefficiencies and correct them to ensure profitability and longevity. MarketRedesign has over a decade of experience in helping companies optimize their pricing and drive more value from their commercial operations.

Having supported hundreds of  of companies survive the challenge of economic downturns, we have an established and proven VALUE RECOVERY METHODOLOGY, which can be customised to meet the needs of  companies in different industries and helps reduce value leakage and bring organisations to a stage of fast impacting margin recovery. This methodology uses data, insights, and time-tested recovery tactics to help enforce cost and price discipline. This allows companies to return to the path of profitable growth and continue building on sustainable pricing strategies.

This framework is designed in 4 step process:

1. VALUE LEAKAGE INDENTIFICATION & DEEP DIAGNOSTIC ON COMMERCIAL LENSES

Organizations often struggle with bleeding margins on account of pricing related challenges such as declining prices, shrinking market share, volume attraction, low volume adherence, excessive freight costs, ill-defined SLAs and so on. However, it is rather challenging to identify the precise causes of margin leakage and to develop a roadmap to improve the situation. Reviewing the performance of the pricing organization using frontline data analysis, stakeholder interviews and surveys can help identify sources of margin leakage.

MRD has developed its proprietary Frontline Profitability ® Methodology – a proven toolkit to help product, pricing and commercial managers bring their organisations in a healthy and profitable state. This entails assessing an organization has:

  1. A well-defined and clearly communicated pricing strategy
  2. Translation of strategies into clear and segmented guidelines
  3. Structures & processes to guide the operational work of sales
  4. Intelligence & tooling for sales to conduct daily activities

A 360 Degree Value Leakage Detection Tool 

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In-Depth Search for Recovery Options

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Profit Recovery Analytics Tools

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2. SMART & PRAGMATIC METHODS TO CONTROL VALUE LEAKAGE

Once the sources of margin leakage have been identified, they can be prioritised based on impact and east of correction and the it becomes possible to get the ball rolling on value recovery. Organizations can implement a host of Smart, simple and effective techniques which bring quick wins and provide the business case for larger structural initiatives. While these differ depending on the issue at hand, they are typically supported by and include:

OPERATING FRAMEWORK – A Frontline Profitability ® Collaborative Model
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  1. Objective Setting & Steering: Process of defining and aligning (pricing & commercial directors) on pricing targets and translating these to guidance (price bands and rules) for sales.
  2. Fact Based Sales Execution: Use of pricing intelligence and guidance in daily practice during negotiations by sales agents.
  3. KPI Monitoring & Control: Monitoring, control and governance of pricing performance and the success of the pricing process.
  4. Learning and Optimization: Using machine learning techniques to improve models with the outcome of negotiations (won/loss data). 
CUSTOMER SEGMENTATION
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A Pareto based segmentation model is quantitively calculated (based on margin, revenues or volume), is easy to understand and provides a risk-assessed approach towards margin recovery.

Example of a price segmentation model based on gross margin (80-15-5) that has delivered improvement in EBITA of 10 – 15 points at companies ranging from food ingredients to industrial components.

PRICING FRAMEWORK
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Organizations can offer sales negotiators various reference points to enable them to negotiate smart deals, such as:

  1. Target Price: Product Price Ceilings
  2. Discount Guideline: Discount Rulings based on Volume Levels
  3. Benchmark/Predictive/Dynamic Price (Potential): Product Price Level of a Cluster of Customers with an identical Profile.
  4. Actual Gross Price: Existing Contract Price of the Customer
  5. Minimum Price: Management Defined Maximum Discounted Price
  6. Floor Price: Controlling Set rock-bottom (minimum) price (Cost+)

3. EMBEDDING RECOMMENDATION MODELS  TO SCALE RECOVERY EFFORT IN OPERATIONS

Predictive pricing  is calculated based on a cluster of deals with similar attributes. Predictive pricing  is the first step in the process to start value recovery. Mathematical/statistical techniques are used to find alternative deal prices, based on relevant data points, which have the highest likelihood of winning the deal.

There are various price drivers that need to be taken into consideration to get an optimal price recommendation. In a waterfall value detection you normally get advised to monitor various price drivers which create price band complexity. In our predictive pricing tool, all the methodologies are encompassed to give you price recommendation in completely individualized format.

4. CHANGE ACTIVATION FOR SUSTAINED AND PROFITABLE GROWTH

MRD has developed a 4-pronged approach in response to the challenge of evolving people and organizational cultures to be dynamic and data-driven. Change activation philosophy advocates the enablement of commercial teams with:

To improve compliance to AI-based pricing intelligence, it is critical to provide sales with tool that improve their productivity, are easy to use, that seamlessly integrate into their operational workflows and provide E2E functionality.

To improve the trustworthiness of models, share key information on input data, model features, prediction build-up using techniques such as feature attribution, shapely values, counterfactuals etc.

Exploit and improve AI-based pricing solutions, it is beneficial to involve them earlier in the development phase and also invest in training programs to help them adjust to the new reality of data-driven operations.

To avoid resistance & prevent sales from feeling threatened, can be challenged to find opportunities for margin improvement in their own portfolio & set target for self, instead of being given a top-down target.

WHAT ARE THE BENEFITS ?

MRD’s pricing teams are made up of experienced pricing experts that have proven that in times of distress, we can identify and correct margin leakage with smart, simple and pragmatic methodology for swift and risk- adjusted recovery of margins

CRISIS PLANNING

Most companies drop prices anywhere between 5 to 10% due to disruptions and take years to recover the losses. Uncertain economic growth, over-regulation and trade conflicts dominate the business environment today.

Do you have a plan for recovery that doesn’t destroy value?

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