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Market and Competitor Dynamics

Issue

Management Consulting A company had instituted a 6% price increase for a product line sold nationally approximately 6 months prior.  Based on discussions with the sales force, they believed some, if not all, of the price increase was holding.  The issue surfaced when the margin rates for the product did not increase consistently with the increased price levels.  The company was unaware of why the profitability for the product line did not increase.

Action

We began creating a new series of pricing metrics and trends based on specific customers and geographies to determine why the margin rates remained relatively steady.  Upon analyzing this data, we found that we were able to isolate the problem to a specific geography.  Pricing throughout the country was rising except for the northeast region where the price level was declining.  Upon further investigation, we learned that a new competitor in that region had decided to enter the market with a lower quality and lower-priced product.  As a result, the price level declined to compete with the new competitor’s product.

As part of the investigation, we determined that the company’s lower-end product for this category would be better served in this marketplace rather than the premium product.  It would compete very well against their new competitor in terms of both quality and price.  The company began a new marketing campaign and began a head-to-head competition with the new competitor.  The company also closely monitored the price level, wins, and losses in this region to determine how the new strategy was working.

Results

After 3 months of changing their strategy, the company began to see a steady increase in the profit Business Advisorsmargins in this region based on the increased sales of the lower-priced product.  The company also used this strategy in other parts of the country where new competitors were trying to enter the market.

Value

The value of recognizing an issue and using analytical tools to help pinpoint the root cause was invaluable in this situation.  Profit was restored to expected levels and the company began to use these pricing tools on all of their products.  Understanding market and customer dynamics through the use of analytical tools gave this company timely and accurate information to make informed decisions very quickly.


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