Size should prove a huge advantage. Scale gives depth in product range and breadth in reach, along with access to resources that smaller players cannot equal. This ought to produce golden opportunities that lead to rosy growth.
However, it doesn’t always pan out that way, especially when size equals complexity. For one large chemicals distributor, their huge size and enviable market share was something of a headache. Their market scale meant several tens of thousands of products and thousands of customers. A history of acquisition had added another layer of complexity and produced inconsistency in control and decision-making.
Their vision was to leverage their market position to drive growth and increase margins. They set ambitious goals that required a multi-year commercial transformation program to realize.
Pricing dynamics analysis
The first step in this program was to analyze the pricing dynamics of their industry in terms of dimensions such as churn, elasticity, and overall performance teardown. This established a solid fact base that provided insights for reviewing their existing business and setting new pricing guidelines.
This analysis identified commercial opportunities to raise or lower product prices in cases where they were out of balance based on price sensitivities and margins. Further sifting identified a range of quick wins that the sales force could then use in a price optimization program.
Success factors
The active engagement of the sales force was critical to success. Their involvement ensured that the iPad-based commercial toolkit developed for the program matched their ways of working. It enabled them to make “better, faster, smarter” decisions in the field. The sales director recalls, “Because it’s been built ‘for the field by the field’, the adoption has been fantastic. It has also been designed to improve decisions which drive the most impact... It is able to drive tangible value and win hearts and minds at the same time.”
The commercial organization then used analysis of customer lifetime values to refocus their sales efforts on their most valuable customers. Sales coverage was rebalanced in terms of “hunting” versus “farming” activity and sales resources aligned against the biggest opportunities.
A sales rep believes the toolkit proved vital in equipping them to make the required changes: “It is incredibly powerful to walk into a customer meeting armed with this kind of insight and information. It makes us much more credible.”
The outcome of the re-pricing quick wins and sales rebalancing was everything the chemicals distributor had hoped for. The program led to a 4 percentage point cash margin improvement within six months of launch. Just as importantly, the tools continue to be a hit in the field with more than an 80% adoption.
Within the first year, the program became self-funding. By year-three, it was yielding a run rate of tens of millions of dollars, matching the commercial organization’s initial ambition.