Insulation manufacturer: 250 basis points of gross margin

Client Overview

An Australian insulation manufacturer, part of a listed building-products group. The business sold through territory managers across all six states and territories. Insulation is a small share of a builder's total cost, customers compare square-metre rates across suppliers, and imported product had widened their choice.

Challenge / Problem

The parent group commissioned a pricing capability diagnostic across six business units and 376 staff. Fifty-two staff from the insulation business took part. The business scored 58.8% on the Pricing Insight 9PE capability measure, 7.0 points behind the other five units and the only unit in the group below 60%. Eight of the nine capability areas sat below the group average.

Symptoms Observed

• Price architecture. There was no base list price. Most customers were individually priced, often job by job in spreadsheets. A list or net price structure with logical relativities scored 51.7%.
• Pricing resources. The pricing team area scored 55.5%, 14.8 points behind the group, with most pricing decisions carried by one central analyst.
• Sales support. Only 40.8% agreed the sales force had a pricing tactics guide. Approvals could pass through three or four people and take up to two days.
• Strategy and market data. A published pricing strategy scored 41.8% and competitor price tracking 36.7%, the lowest result in the survey.

"We don't have a retail price list, which is really Sales 1.01."

Internal Viewpoint

Only 45% agreed the business was meeting its gross margin targets. At the same time, 86% agreed margins could be improved, the highest result for that statement anywhere in the group. Pricing maths results matched the other units, so the constraint lay in structure, resources and tools. Staff understood the opportunity and lacked the means to capture it.

Our Approach

Phase 1: Pricing capability diagnostic
Fifty rating statements, six open questions and a nine-question pricing maths quiz, scored against the nine cells of the 9PE canvas and benchmarked against the group's other business units.

Phase 2: Pricing University
Staff completed Pricing University, Pricing Insight's structured pricing education program, and the business acted on what they learned.

Key Actions Taken

1. A new pricing structure, addressing the absence of a base price architecture.
2. A price increase, addressing the lack of a deliberate approach to price.
3. Reduced discounting, addressing weak control of discounts and overrides.

Results Achieved

1. Incremental gross margin rose by 250 basis points.
2. The gain flowed through to EBITDA.
3. At the business's volumes this is an annualised run-rate of A$2.25 million.

What This Means for Similar Companies

Capability differed sharply across one group. On the same survey, the other five business units scored between 64.2% and 67.9%. A group-wide program designed around the average would have missed the insulation business's specific gaps in price architecture, discount control and pricing resources. The diagnostic located those gaps before any training began.