Specialty Chemicals & Ingredients Supplier
Building Pricing Discipline at Scale
$15M Profit growth over 3 years
Turning Complexity into Sustained Profit Growth
A decentralized organization built discipline, tools, and culture to capture pricing value at scale.
The company operated across multiple business units and end markets, with limited segmentation, decentralized pricing authority, and a history of primarily passing through costs. To unlock value, the team launched differentiated price increases, built a new list price structure, implemented discount controls in ERP, and established a repeatable process for future increases. Over time, pricing became embedded in the business culture, with stronger capabilities and greater confidence across the organization.
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Situation
Pricing Discipline Lagged Behind Portfolio Complexity
Decentralized pricing and limited segmentation left value untapped
- Comprised of multiple businesses rolled-up into multiple business units
- Serve multiple end markets, including food & beverage, industrial, lubricants, personal care, pharma, pigments, plastics, etc.
- Had not historically undergone price increases other than passing through costs
- Limited product and customer segmentation
- Very limited centralization of pricing – sales reps had a lot of autonomy
- Management believed in the power of price; rest of business lacked confidence and strategic pricing as a culture
Qualitative and Quantitative Analysis
Uncovered key opportunities through price differentiation and product segmentation
Limited Price Differentiation Across Business Units
Key Findings:
- BU 1: Large differences in margin % for Tier II customers
- BU 2: Tier I customers only in 3 regions, with stark margin differences
- BU 3: Lower margins than expected on Tier II customers
Ineffective Product Segmentation
Key Findings:
- # Customers Buying each Product: Majority of products were sold to few customers; those sold to many customers tend to be most profitable
- Average Selling Price per Product: Products with mid-tier unit price tend to bring in ~200bps less margin
Approach
Building the Infrastructure for Disciplined Price Execution
New structures and controls enabled disciplined execution
- Launched multiple differentiated price increases to drive bottom line impact
- Created new list price structure
- Established a discount matrix and implemented into ERP to quote new business
- Built structure and process to support future annual increases
- Incorporated new acquisition into pricing strategy
Product Segmentation
Created a more robust product segmentation structure which enabled a greater ability to differentiate pricing on a more granular level
Historical Product Organization
- Only 1 level of hierarchy
- 10 product groups each with varying # of products
- Range from 1K to 1 product in each product group
- Majority of the revenue came from 1 product group
Developed A New Organization Structure for Products
New Pricing Process
Established new list prices and a discount matrix to manage both new and existing business
List Price Logic
Built new recommended list prices based off pre-existing list and historical data
Model Factors
Identified product factors used to determine how conservative or aggressive price increases were
| Modeling Factor | Descriptor | Method of Use |
|---|---|---|
| Product Specialization | Pure commodity, semi-competitive, value-added solution, custom solution | Have more pricing power for custom solutions; little for commodities |
| Product Tier | Tier 1 = Top 50% of revenue; Tier 2 = next 30%; Tier 3 = next 15%; Tier 4 = next 5% | Use more sensitivity when pricing the high runners |
| Margin at List Price | Margin at the new recommended list prices compared to product subclass peer group | Target products with relatively low margins at list price for higher price increases |
| Customer Count Changes | Trend of number of customers ordering a product over trailing twelve months | Products that have been losing customers may already be at or above market price |
| Price and Volume Trends | Product price and corresponding volume trends over trailing twelve months | Be more aggressive on products that have had volume increases along with price increases |
| Unit of Package | Packing types were placed into 3 different units of size; Large, Medium, Small | Certain "Large" packaging have more pricing sensitivity; apply larger increase to "Small" units of package |
Impact
Sustained Profit Growth Through Pricing Discipline
Pricing became a daily management lever
$15M
Profit growth
over 3 years
Cultural change with price a part of every day vernacular
Large growth in pricing capabilities over 6 months
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