Recent Experience in Pricing Strategy

Profit enhancement through pricing, new services, and value selling for an oil and gas well servicing firm: Hamilton worked with management of a large domestic oil and gas well servicing company to develop a specific and actionable plan to increase annual profits by $30 to $40 million, roughly 3 or 4 points of EBITDA. Major initiatives included pricing increases (done after extensive market research of customers and competitors proved the new pricing would “stick”), creating new value-added services, changing operating procedures to reduce the cost of serving customers, and changing the sales approach to “value selling.” Hamilton later became involved in detailed implementation planning, coaching and educating throughout the organization, and change management efforts to ensure the success of these initiatives.

New pricing structure development for a packaging materials producer: For a major provider of printed labels to the consumer goods industry, Hamilton analyzed the company’s sub-optimal profit performance and determined that the major factor was its pricing metric. An overhaul of the company’s quotation system was recommended based on real cost drivers per order. The project team modeled potential changes over the existing customer base, and assisted in strategizing for specific accounts through customer interviews. The new structure enabled the company to dramatically improve its bottom line. In one year the operating income for this $50 million company moved from –4% return on sales, to +4 return on sales.

Evaluating trade-offs between marketing spend and price reduction for a travel company: The CFO of a packaged travel company selling trips largely to high schoolers was under pressure from management to lower prices to try to expand volume. Hamilton was called in for a “pricing audit” Since this large agency incurred mostly variable costs, the Hamilton team quickly concluded that any significant cut in prices could not be made up by volume increases. Hamilton built an interactive model to show the impacts of both price changes and marketing investments that caused a predictable flow of new customers. The conclusion was to continue to raise prices and use the margin dollars to invest in new customers, a tack that had not been taken in several years due to the business uncertainties immediately after 9/11.

Evaluation of the impact of pricing on the value of the lease and rental business of a major CPE provider: For a very large and profitable lease operation (+50% operating profit margins) Hamilton examined worldwide trends in equipment lease pricing, investigated pricing and services strategies of major independent telcos, analyzed trends in leasing behavior during past price increases, and modeled effects of alternative pricing plans on customer retention and business cash flow. Hamilton determination that reducing the customer erosion rate annually by just 1% was worth $100 million in net present value dollars helped to re-direct the strategy of the business. The company switched from passively accepting turned-in lease phones from customers to doing everything possible to retain current customers, including discounting off current price levels.

Pricing improvement for an entry door manufacterer: A midwestern manufacturer of entry doors for new homes and remodeling projects found it was losing money, and management believed part of the problem was pricing. Hamilton analyzed the existing data on product and customer profitability, as well as built some “constant profit breakeven curves” for a whole variety of peripheral products. The work culminated in an evening workshop to discuss pricing concepts followed the next day by a structured workshop of the executive team, which Hamilton led. The purpose of the workshop was to make re-pricing decisions based on Hamilton’s newly analyzed data. The upshot was a profit improvement the next year of +4%, driving the company from red ink to black ink.

Pricing analysis for a new paging product: For a leading marketer of paging services, Hamilton developed a pricing strategy for a fundamentally new product by conducting economic value analysis. The recommended structure avoided cannibalization of existing product lines while capturing maximum value from new customers. Extensive segmentation of potential customer base enabled optimal segment pricing and overall profits. The product has since been introduced successfully.

Development of a strategic pricing framework for a value-added financial services network employing Internet Protocol: A global network provider to the commercial banking industry needed to adapt their technical and business environment to the “Internet age.” Hamilton examined in detail relevant business model and pricing innovations in rapidly changing industries including telecommunications, information services, and Internet commerce, and developed a strategic pricing framework for senior management.

Profitability analyses leading to pricing decisions for a large regional printer: As part of an on-going turnaround effort for a $60 million printer and forms provider, Hamilton undertook a detailed analysis of profit contribution by customer, product, local office and salesperson. The analyses provided a number of surprises: not all large customers were profitable, and in fact, some were not profitable at all; complex, marketing support-driven customers also showed a wide degree of profitability; and, most surprisingly, the analyses showed that just 15 of the sales staff were generating 75% of the gross margin dollars after sales costs. Reporting of these results led to both tactical changes in customer pricing, as well as consideration of the strategy to add more higher-compensated, marketing-driven sales people who could handle several million dollars worth of business each for large, complex customers.

Development of a new pricing structure for a closures manufacturer: For a leading manufacturer of closures in the U.S., Hamilton evaluated a range of pricing issues surrounding the company’s long-standing strategy of attempted market share dominance. By focusing on incremental variable cost analysis, the Hamilton team recommended a capacity utilization-based pricing scheme that would smooth out seasonal profitability, re-price unprofitable customers, and postpone scheduled capital investment until capacity is truly needed. The client is in the process of implementing the recommendations.

Development of a consistent approach to global pricing for a telecommunications equipment manufacturer: A major manufacturer of telecommunications equipment was finding that its international pricing policies were being undermined by decentralized discount decisions made by the sales force, and by the increasing role of systems integrators in selling through value-added solutions bundled with equipment. Hamilton analyzed and evaluated internal company practices and benchmarked global pricing policies of major capital goods companies long-established internationally. The pricing policy, which was recommended, allowed the client to maintain its price premium through centralized control and a logical price schedule reflecting true costs of service.

Assessment of the pricing strategy for a Yellow Pages company: Hamilton analyzed and evaluated the effectiveness of the company's pricing strategy to generate revenue. The engagement involved an in-depth study of the pricing algorithm used and comparison of the algorithm to the pricing practices in other media. The study also uncovered other mechanisms to increase revenue without across-the-board price increases. The study concluded that aggressive price increases of recent years had allowed the company to “catch up” to commensurate media market rates, but further aggressive price increase could to start to drive away advertisers. Hamilton offered four other approaches to raising revenues that did not involve across-the-board price increases, and these were implemented in later years.

New value pricing strategy for a global oilfield services firm: Hamilton developed a worldwide strategy for capturing additional profit margin to take maximum advantage of specific dimensions of competitive advantage in the highly competitive oilfield services industry. Spreadsheet-based customer value analysis tools for use by sales and service personnel in the field were developed, along with a value pricing Case Book which taught field personnel how to implement the strategy using ten actual successful case examples gathered from the client’s field experience around the world.

Development of distribution strategies for Caller ID telephones: Hamilton identified the optimal retail channels and marketing strategies for Caller ID phones. The project team interviewed retailers at all levels, analyzed consumer demand research, and examined Caller ID's track record. After evaluating ten retail channels for their appropriateness, identifying pricing strategies for each channel, and identifying retailers' requirements for channel support, the team developed a profitability analysis of the recommended distribution plan and marketing strategies.

Pricing and market strategy for a vehicle hauling company: Hamilton helped the client find tools to increase profitability and market share in a highly competitive industry that had the major automakers as its customers. Interviews with senior logistics executives and secondary research clarified the issues facing the client. Hamilton recommended revisions of the existing pricing structure and provided clear action plans for gaining and holding market share. A key analysis in the engagement, a constant profit breakeven analysis for the total company, assured management that it was worth the risk to announce major price increases for its largest customer, General Motors. The upshot was significant improvement to bottom line performance, as GM could only divert a small portion of the business to other providers.