PricingKC, LLC
PRODUCT RISKS & OPPORTUNITIES
A great and relatively quick pricing visual to identify risks and opportunities for any product looks at volumes and pricing at an individual customer level. It is important only ‘like’ customers are compared to one another, so customer segmentation is critical for an apples-to-apples comparison. Three measures are captured to easily identify outliers: 1) Each customer’s contact price or average selling price, 2) each customer purchase volume of the specific product, 3) each customer’s overall volume.
As an example, the following plots all retail customers purchasing Product AB:
Overall, there is an inverse relationship between volume and price, in that as volumes increase, pricing decreases. The individual circles, or bubbles, represent the TOTAL volume purchased by each customer.
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The red boxes are identified as possible risks. Neither are particularly heavy buyers of this particular product, both somewhat in the middle, but both are amongst the largest overall customers. Although larger customers shouldn’t automatically receive the best pricing, it is important to identify as outliers. How does the organization look if competition offers a price of $2.50 for the same or similar product? Will the organization be able to defend pricing above $7.00?
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The purple box denotes several small customers receiving a significant discount for product AB despite low volumes on both the product and overall. The opportunity may not be significant for any individual customer, but collectively, may help improve margins if smaller customers under the trendline are scrutinized.
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Consideration should be placed on how data can lead to the wrong conclusion if customer average selling prices are captured. Ensure one-time free products (samples, replacements, etc.) are excluded.