Maintaining profitability through Strategic Pricing and Product Classification

Diagnostic to identify the core issues

In the initial phase of our engagement, we conducted a quick diagnostic to highlight the primary pain points in the client's existing product classification system:

• Technical and Customer-Unfriendly Classification: The existing classification was highly technical and not customer-friendly. This lack of clarity made it difficult for customers to understand the product offerings, and it was also challenging for sales staff to use it effectively.
• Oversimplified Pricing Strategy: The nomenclature led to an overly simplified pricing strategy, leaving sales reps without a clear reference for selling or negotiating. This led to "averaged" pricing, where very different products were sold at the same price by sales reps.

Both issues were directly contributing to the client's diminishing profitability.

Alignment on priority levers to address

Based on the diagnosis results, we helped the client define the following goals:

• Rebuild Product Classification: Develop a clear and customer-centric product classification that highlights the varying levels of product complexity and their respective market destinations.
• Implement a New Pricing Policy: Introduce a new pricing policy based on the revised product segmentation, including detailed price recommendations for different sales contexts.
• Lead Change Management Efforts: Develop internal training regarding the new product segmentation, redesign sales processes, and anticipate IT impacts.

Design of the new product segmentation

To design the target product segmentation, our approach leveraged both quantitative and qualitative analyses.

• First, we built the product classification through quantitative analysis, performing cluster analysis using statistical data to identify criteria impacting price and margin levels.
• Simultaneously, we conducted qualitative workshops with the client to identify customer use cases and determine which criteria most significantly influenced customer decisions and therefore needed to be highlighted within the product classification.
• We also benchmarked against industry best practices to ensure competitiveness.

The new product classification effectively captured the varying complexities of the products, allowing us to better differentiate their value propositions. Previously focused on technical differences, the updated classification now emphasized market destination and product usage, making it easier to address specific client needs. This shift expanded the product range from 20 to over 100 distinct groups, resulting in a clearer, more customer-centric offering.

Impact on pricing methodology

Next, we designed a new pricing strategy tailored to the newly defined product classification.  We determined the optimal price point for each product level and sales situation by conducting quantitative analyses of historical sales data, coupled with the creation of scenarios that explored varying levels of pricing aggressiveness across key market segments. These multiple evolution scenarios enabled the client to select the most suitable price points, aligned with their strategic goals and risk tolerance.

Roll-out & change management: The key to success

We then prepared for the roll-out by assessing IT impacts, defining the implementation timeline, and establishing new processes to ensure the product classification and pricing strategy remained relevant. In addition, we led change management efforts by designing and delivering team training to ensure the successful adoption of the new classification and the corresponding pricing recommendations.