- Price Tolerance
With over 500,000 SKUs, this automotive parts distributor was struggling to manage pricing for all of their products effectively. Working with Revenue Analytics, they developed a rules-based guidance program to price products based on non-price drivers, resulting in a $100M revenue uplift across the organization.
- Promotions and Incentives
An automotive manufacturer sought to improve the effectiveness of its promotional and discounting practices. With the principals of Revenue Analytics, customer response to incentives was measured and optimal recommendations were made based on market segment and incentive type, resulting in a $800M gain in revenues.
- Pricing & Inventory Optimization
An automotive retailer was faced with slowing revenue growth due to changing market conditions and new competitive threats. They aligned with Revenue Analytics to bring more sophistication and consistency to their inventory management and pricing practices through the creation of a new optimization system. Benefits are estimated at more than $160M in annual incremental revenues.
The automotive industry operates with high fixed costs, long product development cycles and chronic overcapacity. These factors, combined with uncertain raw materials prices, create constant pressure on profitability and cash flow.
Contrasting with these ponderous constraints is the fickle behavior of consumers. Consumer spending is unpredictable and consumers have more options and greater transparency than ever. These conflicting demands create the need for predictive capabilities and flexibility.
Revenue Analytics’ principals have been change agents in the auto industry. Our success in using sophisticated analytical techniques to generate hundreds of millions of dollars in incremental profits for the industry has been celebrated in numerous publications.
Revenue Analytics ground-breaking Pricing and Revenue Management capabilities are based upon a sophisticated decomposition of tens of millions of transactions which generate a clear vision into what consumers really want. Using “bottom-up” techniques which predict market response, we help clients understand the relationship among all of the elements of the marketing mix so that they sell the right vehicle to the right consumer at the right time for the right price.
Most companies would agree with the old adage, "50% of promotional spending is wasted… but we don't know which 50%". We help our clients utilize statistical modeling to measure the effectiveness of promotions at the most granular level, and:
- Identify ineffective promotional and incentive spend
- Recognize the optimal promotional amount and promotional vehicle (e.g., cash back or subsidized financing)
- Predict response to promotions and incentives by product, market, channel and customer segment
- Understand impact of discount and incentive decisions on inventory turns, production scheduling and supply chain
- Incorporate impact from advertising programs on promotional effectiveness
In addition to being the foundation for all business planning, demand forecasting is the bedrock on which successful Pricing and Revenue Management programs are built. We partner with clients who seek to evolve their forecasting and demand planning to:
- Predict demand at a granular level by product, market, channel and customer segment
- Incorporate price sensitivity, seasonality, trend and manufacturing capacity limitations into demand forecasting algorithms
- Predict sales trends based on changing market conditions, new model introduction and competitive actions
Channel-related issues, such as channel conflict and cannibalization, can cloud judgment in pricing decision-making. Effective channel strategies and channel management is a critical ingredient for generating optimal prices. We partner with clients to:
- Minimize channel conflict and avoid cannibalization through the introduction of second line or aftermarket products
- Understand channel contribution and enhance channel strategies
- Create fences to deter channel migration and cannibalization, and establish and track compliance metrics
The concept of integrating end customer demand with production and supply chain decisions improves coordination, operational efficiencies and total net margins. To truly link all decisions from "procurement to customer purchase" is a complex process that requires a well-formulated plan and a phased approach. We partner with clients to:
- Design the transformational plan to achieve integrated customer demand and supply optimization
- Design and deploy knowledge platform to synchronize decisions across entire supply / demand continuum
- Develop comprehensive change management frameworks to ensure adoption of decision support recommendations and consistent execution across functional groups
- Integrate scenario planning capability to evaluate strategic alternatives and diagnose root cause of suboptimal decisions between pricing, promotions, distribution, production, R&D and procurement
In our experience working with automotive sector clients, we have found that the best pricing strategies are well-defined, communicated throughout the organization and actionable. Developing the right pricing strategy requires combining strategic objectives with granular data analysis. We partner with clients to:
- Educate stakeholders about potential pricing strategies that fit their current operating model and strategic objectives
- Perform detailed analysis to determine value proposition vis a vis competition at a customer segment level
- Compare value proposition analysis to potential pricing strategies to determine ideal strategy by segment
- Ensure a rational price structure across channels and substitutable or complementary products
- Create change management plan to communicate pricing strategy throughout the organization
Companies in the automotive sector – from OEMs and tiered suppliers all the way down to the dealer showroom – are faced with the daunting task of pricing thousands, if not hundreds of thousands, of products. We design rules-based pricing approaches and:
- Create price sensitivity ratings and reports that communicate expected price change response to decision makers
- Develop business processes to use business rules for identifying pricing errors, making pricing changes and predicting the impact of pricing / discounting decisions
- Design models to measure price responsiveness while accounting for the impact of non-price demand drivers such as seasonality, product lifecycle, supersessions and warranty
- Develop a plan of action for implementation and ongoing performance measurement
Although traditional segmentation approaches are useful for mass marketing, they often do not help describe customer behavior and consequently are not optimal for pricing decisions. We work with our clients to:
- Understand strategic, share and profitability objectives and identify key customer attributes, such as demographics or brand preferences
- Perform clustering, CHAID and regression analysis to identify commonly held traits and behavior patterns among customer groups
- Develop strategies, business processes and methodologies for optimizing pricing, discounting and inventory allocation decisions across customer segments