Consumer Pricing

Executives are well aware of the power of pricing — a successful pricing change can positively impact sales, profitability, and operating income rapidly and effectively. In fact, we see advancing pricing practices as likely the single most effective tool for revenue growth management among consumer goods companies. That does not mean it is easy, however; whether it is end consumer or business-to-business (B2B) pricing, the decision of how and what to charge is fraught with risk, emotion and long-held heuristics.

An outside-in diagnostic, performed in partnership with an experienced advisor to the industry, can evaluate where opportunities are real and where they are not. Working together, we can take in the full spectrum of opportunities, including portfolio design, price changes, promotions and discounts — to identify where to focus. We leverage industry expertise, advanced analytics, consumer surveying, competitive analysis and expert feedback to unlock the insights needed to take further action. Whether this is done as the first phase of a full project or as part of a diligence effort, it can provide a roadmap to significant value.

Our capabilities

L.E.K. has deep expertise in analyzing existing pricing models and strategies to identify opportunities to enhance pricing strategy, thereby increasing profits. We segment opportunity identification into two key areas:

• Consumer
  To identify consumer pricing opportunities, L.E.K. will conduct an assessment of the current product/service portfolio and price curves by product/channel. We will evaluate company performance and usage of consumer-facing discounts/promotions, analyze the competitive landscape, and (as needed) survey consumers to understand their price elasticity.
• Value chain
  To identify other pricing opportunities, L.E.K. will interview customers (e.g., distributors, retailers and other third parties) to understand their perception of a company’s price positioning. We will evaluate the competitive landscape and common pricing practices such as average levels of trade spend and shopper marketing support.

While the objective of pricing strategy is quite simple — optimizing prices to maximize profit and customer lifetime value (LTV) — pricing strategy is highly nuanced and involves a range of decisions that vary by product and market. This can include evolving a portfolio to support an optimal price curve, developing options in different price tiers to serve specific customer segments, and using price as a competitive differentiator. For consumer businesses, it is important to consider the price set to the end consumers, through a deep understanding of their segmentation and elasticity, and also the prices, discounts and incentives to use with channel partners to ensure those consumers find your products.

A pricing partner needs to deeply understand your market and your business, while also maintaining a toolkit of approaches and experience drawn from the broader pricing world. Although L.E.K.’s Consumer practice can partner with you across pricing strategy questions, we have developed deep expertise and a strong track record for delivering value through eight specific services.

Strategic pricing service lines

• Price setting for new products/services 
  When new products or services are developed, companies must answer a number of questions regarding pricing. Through what model will a product/service be delivered? What is the optimal portfolio of products? What are the appropriate price levels and sales channels to utilize? To assist, L.E.K. will complete a market landscape assessment, conduct customer interviews/surveys and perform a competitive positioning review to identify appropriate pricing strategies that will ultimately maximize profits for your organization.
• Price pack architecture
  Price pack architecture (PPA) is the science of leveraging category diagnosis, ideation, conjoint testing, and simulation to determine which product categories and product traits (including pricing) are likely to yield the best results. L.E.K. utilizes a multiple-step process to create channel-specific strategy recommendations that will maximize revenue. 
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• Trade spend optimization
  Trade spend is the budget that brands dedicate to promote their products at retail locations and is one of the top levers for consumer packed goods (CPG) companies to have an impact on their P&L. L.E.K. performs sophisticated analyses on historical trade spend, consumer preferences and competitive strategies to develop an optimal trade strategy playbook. 
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• Promotional optimization
  Promotional activity is an important strategic lever for many retailers; however, promotional programs can be costly and complex. L.E.K. combines our proven approach with advanced analytics and industry expertise to help clients develop promotional strategies that drive improvement in profitability and product life cycle. 
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• Price model evolution (e.g., razor-razorblade, bundling, everyday low price vs. promo-led, subscription) — Consumer product and retail companies have a variety of pricing models at their disposal, ranging from individual product pricing to product bundling and subscription programs. With any of these approaches, L.E.K. has expertise in both the development and evolution of pricing models to best address consumer needs with strong competitive positioning. 
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• Assortment optimization and SKU rationalization
  Retailers have hundreds, if not thousands, of SKUs to select from when organizing their portfolios, and selecting the optimal assortment across various sales channels can be taxing. L.E.K. specializes in analyzing SKU performance, consumer preferences, channel dynamics and competitive strategies to help companies select a channel-specific SKU assortment that will maximize revenue potential. 
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• Customer terms and profitability
  Many companies struggle with how to best understand, segment and prioritize customers, leading to a “one size fits all” approach for allocating resources and investment. L.E.K. helps clients identify the highest-priority customer segments for targeting and define value propositions tailored to the needs of those segments, while optimizing the economics from both a provider and a customer perspective. 
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• Customer lifetime value management
  Customer lifetime value is the value of a customer based on the total amount of order value less costs over a customer’s “lifetime” with a brand. Maximizing customer LTV is a key tactic for creating recurring revenues, reducing customer churn and keeping total customer acquisition costs low. L.E.K. has proven techniques for managing customer LTV by driving retention, order volume and average order value. 
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L.E.K. defines our pricing execution services in two key areas of expertise — organization and processes, and dynamic tools and monitoring — both of which are critical to successful execution of a pricing strategy.

Organization and processes

Even with clearly defined pricing strategies, realizing the true potential of pricing capabilities and executing on the operations of these strategies can be difficult. Many companies, struggling with effectively carrying out the actions required to realize planned pricing changes consistently, fall short of predicted financial implications. Rolling out a new pricing philosophy across the organization, and ensuring strong, customer-centric decision-making consistent with that strategy, is critical. Given the requirement for continued evaluation and refinement, successfully building and refining a pricing function can be key for many organizations. Much depends on organizational maturity, however, so no two pricing organizations should look alike.

Organization and processes pricing service lines

• Selling playbooks and materials
  Once internal alignment is completed, external materials must be developed for sales teams to appropriately execute the pricing strategy. L.E.K. is experienced at creating appropriate playbooks and other related content to empower the sales force to effectively implement pricing strategy with customers.
• Transition management
  In some cases, the newly developed pricing strategy is a sharp contrast with existing strategies, necessitating an intense transition to successfully realize the positive revenue impact. L.E.K. can assist with change management to ensure effective and efficient implementation of new strategies.
• Pricing governance
  Pricing governance is the final step, and a very critical one, in the operations of pricing strategy. It entails creating a pricing framework to implement and monitor a pricing strategy. L.E.K. brings years of deep expertise in pricing governance to aid clients in that process.
• Pricing organization, roles and internal incentives
  One of the first steps in materializing any pricing initiative is to ensure your organization is internally aligned and prepared for the mission. L.E.K. has been a trusted advisor in helping CPG companies and retailers reshape their organization to maximize the pricing strategy results, from streamlining roles and organization structures to accurately setting up internal incentives for the sales teams.

Tools and trackers

Leveraging data as a strategic asset is a powerful tool that can help organizations make better, data-driven decisions. Having the right data analytics tools becomes mission-critical in achieving any pricing strategic vision. L.E.K. can assist your organization in specifying your needs and identifying the right dynamic pricing or data monitoring software that is most suitable to your business situation and demand. Or we can design and build a toolkit from scratch, custom-made. The tools are optimized to ensure you have the right visibility into pricing data to continue monitoring and managing your pricing tactics, course correcting when necessary.

Tools and trackers service lines

• Pricing software strategy
  L.E.K. brings expertise in assisting clients with developing a pricing software strategy, including needs definition, assessment and selection of software, and transition management and development of best practices for the selected software.
• Pricing KPIs
  L.E.K. specializes in selecting pricing KPIs unique to an organization’s specific goals and pricing strategy. L.E.K. will also develop industry benchmarks and monitoring techniques to ensure that effective pricing strategy is being monitored and course correction occurs when necessary.
• Pricing tool design and development
  L.E.K. has the capabilities to build robust pricing tools that can illuminate dynamic pricing opportunities and monitor pricing strategy success, among other use cases.