MARGIN EROSION

Up until the mid 1990s, gross margins of 50% used to be the standard rate for manufacturers.  The margin structured resulted in the old adage of 'look after the top line and the bottom line will look after itself'.  This perpetuated the volume and market share myths that drove many companies into protracted price wars and bankruptcy

IMPACTS   

During the 1990s, sales forces were free to focus on moving volume and the limited reporting systems available.  This perpetuated volume and market share myths that drove many companies into protracted price wars or bankruptcy. The spread of globalisation and the internet also allowed low cost countries to compete against western countries with all types of products and services, from aluminium extrusions through to clothing apparel and furniture.  Their cost structures typically functioned at margins of 30% or less

The impacts of these margin erosion trends on pricing practices are:
-  Changes the business model to low costs or high value add
-  Refinement of pricing management approaches to ensure channel integraity and market profitability
-  Understanding the value drivers and maximise the price paid by customers for these value drivers

GUIDING PRINCIPLE OF VALUE BASED PRICING

Detailed analytics are required to know how to raise or adjust pricing by SKU, product group, customer and/or channel. Critically, but often overlooked, is the role of the business cycle in the development of a pricing strategy. The most common mistake companies make in managing margins is the failure to recognise the point in the economic cycle where margins can be expanded

Typically, a price rise is left until too late in the business cycle, resulting in a non stick price rise. As the cycle shifts, demand falls away and market prices begin to fall in response. The net result is a failure to optimise margins when demand can sustain price adjustments or earnings decline when demand softens.  This is due to dramatic price swings as competitors use price to chase illusory market share or volume objectives

HOW CAN PRICING INSIGHT HELP YOUR BUSINESS

Margin Expansion Planning (MxP) is Pricing Insight's structured approach to help you build gross margins across the product or service portfolio using Value Based Pricing principles. MxP is supported by a number of discrete business models that can be readily integrated into your go to market planning

These margin protection plans include:

-  Volume rebate management programs
-  Discount control systems
-  Customer pricing menus
-  SKU analytics
-  Customer price segmentation

See our suite of Consulting Services to see how Pricing Insight can assist with optimising your margins and maximise earnings

CONTACT US

For further inquiries or a confidential discussion, please contact us on:
+61 2 9091 0226