Specialty Lubricants Marketer
Accunomics engaged at a specialty marketer of lubricant products with over $320 million in annual sales. The business was losing $40 million per year, and management was confounded that their recent 8% increase in list prices had not stopped the bleeding. As a result of our work, profits improved to $90 Million, an increase of nearly $130 Million.
Detailed Pricing and Profitability Analysis
We began with an in-depth analysis of the company’s invoice-level sales data – before and after the price increase. The analysis revealed that the margins created by the price increase were almost entirely discounted away by the sales force. The 8% increase in list prices was reduced to just a 1.5% increase in net prices. Salespeople were incented to drive volume, and feared the price increase would lose their biggest customers.
In order for the business to become profitable, the company’s sales people had to be committed to creating profitable customer relationships. We built a robust customer and product level profitability model to educate its sales force on the contribution levels of their customers. The incentive compensation system was then changed to focus on profitability in addition to volume and other metrics.
Management Operating System
To instill the new profitability orientation throughout the business, we designed and deployed its management operating system across 17 countries. In addition to customer and ship-to profitability data, the MOS included detailed planning templates for long-term contracts and a restructured deal approval process. Armed with the tools they needed to lock-in profitable relationships, sales people were then provided training on how to plan, test and execute price and discount changes within their customer portfolio. They learned how to have difficult but effective conversations with their customers, and had a complete set of talking points to use in the marketplace.