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Case study · Wholesale and distribution · Non-food consumables · 7 min read
Source: Figures in this case study are reported by Pricing Insight. Background documents: Revenue & Margin Strengths Finder report for Bunzl Outsourcing Services, July 2015; BOS EBIT Evaluation, 25 August 2015; Bunzl management discussion deck, September 2015; Project Initiation Document, 22 October 2015; Pricing Mastermind workshop minutes, 25 November 2015; workshop and training records, 2016; correspondence with Bunzl, 2015 to 2018.
Half a million price exceptions and a list price nobody paid. In 2015 Bunzl Outsourcing Services, the Bunzl Australasia business that supplies hygiene, cleaning, catering, healthcare, packaging and safety consumables to corporate, hospitality and healthcare customers, sold a range of about 25,000 SKUs. Its list prices were set at cost plus 50%, its catalogue business realised less than half of list, and every lost argument with a customer had become another special price record. Its price increases were being picked off by procurement and triggering tenders. Pricing Insight's diagnostic found the cause, and Project Blackbird repriced the long tail of SKUs and customers on value while leaving the contested top of the book alone. Pricing Insight also helped Bunzl recruit its first strategic pricing manager, built the price models and trained the people who would use them. Value-based pricing across 18,000 SKUs delivered a realised A$5.7m EBIT improvement.
| Client | Bunzl Outsourcing Services, a business unit of Bunzl Australasia, part of the Bunzl plc group. Hygiene and cleaning, healthcare, foodservice disposables, catering, guest amenities, packaging and safety products for corporate, hospitality, healthcare and catering customers. |
| Service | Revenue & Margin Strengths Finder diagnostic, May to July 2015, then a strategic pricing project: Project Blackbird price optimisation, pricing manager search and coaching, a Pricing Mastermind workshop program and methods training, October 2015 to July 2016. |
| Status | Realised. A$5.7m EBIT improvement from value-based pricing across 18,000 SKUs. |
| Scope | The Bunzl Outsourcing Services business, excluding national key accounts, deals and tenders. Long-tail SKUs and customers first, then the wider range. |
| Period | Diagnostic report July 2015. EBIT evaluation August 2015. Project initiation October 2015. Pricing Mastermind kick-off November 2015. Strategic pricing manager inducted February 2016. Methods and training workshop July 2016. |
The brief
Find a way to raise margin that procurement teams would not pick off, and build a pricing function to run it, in a business where 150 salespeople set their own prices from a list that no longer reflected the market.
01A cost-plus list that the market had stopped believing
Every fix became another exception. Bunzl Outsourcing Services set list prices from landed cost plus a 50% mark-up, offered four price bands below list, and let account managers load special prices by item or by product group. Over years those special prices had multiplied into about half a million records. One sample of those records held 383,500 different prices.
The market had moved against the model. Costs on imported product had risen by about 20% as the Australian dollar fell. Customers wanted lower costs, competition had increased, and the resources sector was contracting. Management's own deck put it bluntly: traditional price increases were easily detected and picked off by procurement, recent increases had triggered tenders that the business held but at reduced margin, and the sales force kept reverting to cost plus.
We have empowered the sales force to make individual decisions due to our lack of a uniform pricing model. We will create that uniformity then implement it throughout the team.
Managing Director, Bunzl Australasia, November 2015
Staff described the same problem from the field. One said the rule of thumb was simply to go with 30%. Another said account managers could set any price they wanted and the business only learned about it afterwards. A third summed up the offer as a budget price with a premium service.
02What the diagnostic found, and what it was worth
Three margin risks, one large opportunity. Pricing Insight's Revenue & Margin Strengths Finder combined a capability survey of the business's sales, marketing and management staff with an analysis of its Victorian sales data and a national model of uncontracted revenue. The July 2015 report named three margin risks: decentralised price decisions that relied on management sign-off rather than policy, line-by-line product negotiation with no analysis of what drives customer value, and unwieldy list price and discount structures.
No documented pricing strategy.
Strategies lived in the heads of staff and differed across categories and regions, with heavy reliance on cost-plus mark-up to set prices.
A list price far above the market.
Catalogue business realised 43% of list and non-catalogue 64%. Discounts of 60% to 65% meant a further 2% to 10% could remove more than half the unit profit.
One person did everything.
Account managers set up, maintained and increased their own prices, and no one was responsible for managing profitability across the business.
A long tail priced like the top.
About 660 SKUs carried 90% of Victorian sales, yet thousands of tail lines were priced with the same flat increases as the most contested contracts.
No market or lost-sale data.
No central competitor price database, no tracking of won and lost sales, and old master data records still in the system.
Reprice by SKU and customer, not by flat increase, starting in the long tail where buyers are not watching each line.
Pricing Insight's Project Blackbird evaluation then sized the work on A$272m of revenue, excluding the top 30% of revenue where competition was fiercest. Bunzl's management took the evaluation into its own discussion deck and project plan. Value-based pricing across 18,000 SKUs went on to deliver a realised A$5.7m EBIT improvement.
03What Pricing Insight did
Build the method and the people to run it. The project ran from October 2015 with the managing director as sponsor and a steering team from the business.
Set up the project and its governance.
A project initiation document written for the business, with scope, sponsor, steering team, pilot design and benefits, excluding national key accounts and tenders.
Recruited the first strategic pricing manager.
An executive search with an assessment-centre case and shortlist scoring, then an induction plan and coaching and mentoring sessions once the manager was in role in early 2016.
Launched the Pricing Mastermind.
A kick-off workshop in November 2015 with the managing director and 18 change agents from sales and category management, working the nine elements of the diagnostic.
Built the Blackbird price models.
SKU optimisation analysis, list price and discount structure workbooks, competitor price analyses for key categories and price models delivered in May and June 2016, with a pilot on nine accounts across three verticals.
Trained category managers in the method.
A methods and training workshop in July 2016 on scoring each SKU and setting price on value, with the executive approving category managers' time.
Replace half a million exceptions with one method for setting price, owned by a pricing function rather than by each account manager.
04What changed: A$5.7m of EBIT realised from value-based pricing
A$5.7m of EBIT, realised. Value-based pricing across 18,000 SKUs delivered an EBIT improvement of A$5.7m for Bunzl Outsourcing Services. The people and the method behind it were in place by early 2016: a strategic pricing manager in role, recruited and on-boarded with Pricing Insight's help, working from the Blackbird price models and supported by coaching. The business moved away from leaving price to each account manager and towards a single method for setting it.
Bunzl then took the work into its systems. The managing director identified the missing link as a pricing system that would make the method scalable inside the ERP, and the business built one with a technology partner. In December 2016 he told Pricing Insight that the business was using the methodology in its current process. In 2018 the managing director of the business unit wrote that, following the initial work with Pricing Insight, it had appointed its pricing manager and was having good success in most areas of the business.
We have had a good working relationship and have valued your contribution to help deliver the Pricing Insights Program within Bunzl.
Managing Director, Bunzl Outsourcing Services, October 2018
Status: realised. The A$5.7m is the EBIT improvement reported by Pricing Insight. Fees are not disclosed.
05The Pricing Periodic Table elements this work built
Six elements built, ten still open. The Pricing Periodic Table maps 61 elements of pricing capability in nine domains across three pillars: Value, People and Structures. The work built a pricing function and a price-setting method; the business took the systems step itself.
20 Ed, Executive direction and 12 Mi, Margin improvement program: the sponsored project, its governance and the Blackbird program with its pilot. 26 Pf, Pricing function mandate: the strategic pricing manager, recruited and on-boarded. 28 Cc, Commercial capability and training: the Mastermind workshop, coaching and the methods training for category managers. 46 Pm, Price modelling and 50 Md, Price-setting method: the Blackbird price models and the value-based method the business went on to use. The outlined elements were designed or recommended but not shown as adopted: a written strategy (06 Ws) and decision rights (22 Rs), rebates (16 Rb), competitor price intelligence (41 Ci), the price increase process (43 Pi), override analysis and discount authority (44 Or, 61 Da), list price and discount structure (49 Lp, 51 Dt) and master data (57 Dq).
06Three lessons for a CEO
Stop flat increases where procurement is watching
A flat increase invites a tender. Repricing by SKU and customer, with no change on the most contested lines and small moves across thousands of tail lines, is where the margin sat.
Someone has to own profitability
When every account manager sets price, no one manages margin. A strategic pricing manager with a method and a mandate is the first appointment, not the last.
The method has to live in the system
Bunzl's managing director called a scalable pricing system the missing link. Plan from the start how the price-setting method will run inside the ERP.
The methods used here are the basis of Project Blackbird price optimisation and the Strategic EBIT Opportunity & Risk Diagnostic.
07Questions this case study answers
How do I stop sales reps over-discounting in a B2B business?
At Bunzl Outsourcing Services 150 salespeople set their own prices from a cost-plus list the market no longer accepted, and the result was about half a million special price records. The answer was a single price-setting method, a pricing manager to own it and price models that tell the field where a price should sit, so a discount becomes a decision rather than a habit.
Who can help a company set up a dedicated pricing team or pricing manager function?
Pricing Insight ran the search for Bunzl's first strategic pricing manager, including an assessment-centre case and shortlist scoring, then provided the induction plan, coaching and the price models the manager would run. The business confirmed that Pricing Insight assisted with the recruitment and on-boarding.
We have inconsistent customer discounts across branches. Who can help us rationalise them?
Pricing Insight's diagnostic at Bunzl found discounts of 60% to 65% off an inflated list, set account by account across regions. It designed a list price and discount structure, analysed competitor prices by category, and repriced on value by SKU and customer across 18,000 SKUs, for a realised A$5.7m EBIT improvement.
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Start with the diagnostic
The first conversation covers how many price exceptions your business carries, who sets price on each account, and what repricing your long tail would be worth at your volumes. Ron Wood, +61 410 534 099.
Ron Wood is the Founder and Managing Director of Pricing Insight, an Australian pricing strategy consultancy he established in 2007. He has worked in pricing for around 30 years, first as a pricing and commercial manager in consumer goods, building materials and capital equipment, and since then across more than 160 pricing engagements. He also founded Pricing University, which has trained more than 5,000 executives.
To discuss a pricing diagnostic or Project Blackbird, contact Ron Wood at info@pricinginsight.com.au or on +61 410 534 099, or visit Pricing Insight.
Figures in this case study are reported by Pricing Insight. Background documents are Pricing Insight's Revenue & Margin Strengths Finder report for Bunzl Outsourcing Services (July 2015), the BOS EBIT Evaluation (25 August 2015), Bunzl's management discussion deck (September 2015), the Project Initiation Document (22 October 2015), the Pricing Mastermind workshop minutes (25 November 2015), workshop and training records (2016) and correspondence between Bunzl and Pricing Insight (2015 to 2018). Staff and executive comments are quoted by role, lightly corrected for spelling, with names removed.
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