Strategic Pricing Associates (SPA) Pricing Cube™ Overview Jan-2014

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Information about Strategic Pricing Associates (SPA) Pricing Cube™ Overview Jan-2014
Business & Mgmt

Published on February 28, 2014

Author: StrategicPricingAssociates



The SPA Pricing Cube™ combines your understanding of markets with SPA’s powerful analytics, to identify the optimal pricing architecture for your business, focusing discounts on the most price-sensitive products and customers, where it will have the biggest payoff in competitive positioning; and extracting small premiums on less-sensitive products and customers.

The SPA Pricing Cube™ takes the guesswork out optimized pricing in complex environments, allowing your sales force to focus on serving the customer and driving value. Our process provides for flexibility and discipline in pricing, to create a balance that works in your business.

SPA’s Multivariate Sensitivity Profiling •  SPA analyzes client invoice data, looking at •  customer product baskets and customer order patterns by product SPA analyzes key predictors of price sensitivity •  Order frequencies, volumes, repeatability •  Customers’ relative spend by product •  Distribution of many properties by customer and across groups of customers •  Result: recommended price premium map to skus and vendors by individual customer or customer group Copyright 2013 Strategic Pricing Associates, Inc. 18

Customer’s Core vs. NonCore Pricing y = -1E-06x + 1.0394 Core vs. NonCore Pricing 2 R = 0.0002 1.80 1.60 Customer's SKU Price Index 1.40 1.20 1.00 0.80 Low-Sensitivity SKUs Getting Lowest Prices 0.60 0.40 0.20 - 2,000 4,000 6,000 8,000 10,000 Customer's SKU 12 Month Sales Copyright 2013 Strategic Pricing Associates, Inc. 12,000 14,000 16,000 19

The Strategic Pricing Associates, Inc., Pricing Cube •  The Pricing Cube is the foundation for •  •  •  organizing transaction data for purposes of comparative indexing analysis Every customer is assigned to a market segment and customer size; every product/ service is assigned to a product/service family Every product/service is profiled for price sensitivity, at the segment level or at the customer-specific basket level The Pricing Cube provides a foundation for setting pricing standards in complex environments Copyright 2013 Strategic Pricing Associates, Inc. 20

SPA Pricing Cube (Sample Values) Product Sensitivity Rating Market Segments Customer Size Customer Type 1 Customer Type 2 Customer Type 3 0.920 0.960 Customer Type 4 0.900 0.980 Large 0.950 0.970 1.010 1.0400 Medium 1.000 1.030 1.070 1.050 1.080 1.120 1.070 1.100 1.150 1.03 1.07 D 1.12 1.170 Tiny B 1.105 Small 1.00 C Huge A 1.200 The Pricing Cube Structures Strategic Pricing Standards Around Market Segments, Customer Sizes, and Product/Service Sensitivity Copyright 2013 Strategic Pricing Associates, Inc. 21

Fundamental Pricing Opportunities •  Complex companies have missed opportunities to manage pricing in two key dimensions •  •  •  •  Many customers are getting lower prices than they should Low-sensitivity products are not generating price premiums The combination is typically worth 2 to 4 margin points 2 margin points = $200,000 per year per $10 million in affected revenue One Customer's SKU Pricing Customer Size vs Index 1.50 1.40 Customer Index 1.30 1.20 1.10 1.00 0.90 0.80 Small Customers Getting Low Prices 0.70 Customer's Price Index per SKU 1.50 1.40 1.30 1.20 1.10 1.00 0.90 0.80 Low-Sensitivity SKUs Getting Low Prices 0.70 0.60 0.60 0.50 0.50 - 50,000 100,000 150,000 200,000 Customer's 12-Month Sales Volume 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 250,000 Customer's 12-Month Sales Per SKU Copyright 2013 Strategic Pricing Associates, Inc. 22

SPA Pricing Cube Versioning •  The SPA Pricing Cubes are versioned to use advanced analytics to generate increasing gains; we recommend starting with Silver Silver Cube Type 1 Type 2 Type 3 Gold Cube Type 1 Type 4 Type 2 Type 3 Platinum Cube Type 1 Type 4 H H L Type 3 Type 4 H L Type 2 L M Estimated 1.0x (2% Gain) M Estimated 1.5x (3% Gain) M S S S T T Estimated 2.0x (4% Gain) T Silver Gold Platinum •  Basic Architecture •  Intermediate Architecture •  Advanced Architecture •  Data Services: Basic Sensitivity Ratings •  Data Services: Dynamic Sensitivity Ratings (more C/D revenue) •  Data Services: Dynamic Sensitivity Ratings, Type- and CustomerSpecific •  Pricing Structure: Differential Type-Size Values; and Dynamic Slopes and Premiums •  Pricing Structure: Dynamic TypeSize Values and Dynamic Slopes and Premiums; Customer-Specific Sensitivity, Behavioral Scoring and Cost-to-Serve •  Pricing Structure: Basic Type-Size Values; and Constant Slopes and Premiums •  Good Impact: Estimated 1.0x (2% Gain) •  Better Impact: Estimated 1.5x (3% Gain) •  Highest Impact: Estimated 2.0x (4% Gain) Copyright 2013 Strategic Pricing Associates, Inc. 23

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