Summary
A mid-tier transport service company with an annual revenue of $200 million had a steady 4% year-over-year growth rate but realized no change to net sales per pound. The company was questioning its existing pricing structure, which historically has been based on distance traveled and weight, independent of the material or market nuances. Traditionally, when implementing price increases, the company employed a “peanut butter” spread method, uniformly applying the same percentage increase across all courier routes, regardless of their capacity utilization. Revenue Management Labs was engaged to assess their current pricing strategy and uncover opportunities to increase overall revenue growth and specifically net sales per pound. Our experts approached the pricing challenge through focusing on three main areas: building the strategy, setting effective list prices, and training the internal stakeholders on the new pricing strategy.
Challenge
The transport company had implemented frequent, regular price increases of 0.5% over three quarters but observed no change to net sales per pound. This discrepancy raised a critical issue that demands attention and strategic intervention. When we see flat sales with a price increase, typically we first examine price elasticity and have developed a demand sensitivity tool to assess whether customers are highly responsive to price changes. The company was also applying price increases across all courier routes but were aware that their back haul route was running at half the capacity of another route, head haul. That immediately flags an opportunity to set prices to increase capacity in the under-utilized route. More generally, there may be an opportunity to segment pricing according to the route.
Solution
The experts at Revenue Management Labs developed a pricing strategy that independently priced routes and based those list prices on willingness to pay and new customer-relevant offerings add-ons for additional charges the customer perceived as added value. The second part to the pricing solution focused on implementation. Revenue Management Labs completed training on each part of the pricing tool and effective sales communication. Training internal sales on pricing tools enabled the company to align internal stakeholders on pricing and achieve consistent pricing. Sales communication training on the list pricing changes and the value-added offerings resulted in increased sales effectiveness, which had an immediate impact on revenue.
