Pet Food, Durables & Consumables: Portfolio, Channel & Pricing Reset - Case Study

Industry: Consumer / Pet
Area: Pricing Strategy and Revenue Growth Management

In collaboration with EBITDA Catalyst, Revology's strategic partner for driving value creation for mid-market Private Equity.

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SITUATION

Client Background

• The Client, a privately owned premium pet food & pet products multinational company, sells under a portfolio of leading Pet brands primarily to cat / dog, aquatics, reptile and durables such as pet furniture, toys, and feeding devices

• Primary markets span the large economies of North America and
  Europe, with strong channels in Big Box Retail, Ecommerce & Club

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Chaotic, Bazaar-like Pricing With No Strategy

• The Client's didn't have a well defined MSRP list and various price lists for larger customers had no clear connection to each other or central strategy. MAP pricing was spotty and outdated.

• All but the largest customers seemed to have price lists with separately negotiated discounts, often submitted by an individual sales rep

• Head of Sales seemed alone in knowing the price lists location & contents.

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  Turnaround Situation

  • The US division / market, worth 9 digits in revenue, had been loss making for years under poor management.

  • A new GM had been brought in to reset and turn around the business, and damaged or neglected relationships with retailers.

  • Sales were declining. This appeared to limit potential for price increases, resulting in apparent "no win" situation.
    
    Sprawl in SKU Portfolio and Customer Base

  • Client's product portfolio had a very long tail, with thousands of SKUs that didn't generate enough sales to be profitable.

  • Client served countless smallish customers out of the same warehouses as its key accounts, generating operational challenges + high costs-to-serve

  • Client was considering moving to a distributor model and in talks with large pet products distributors

ACTION

Revology and EBITDA Catalyst assisted Client in reset of Pricing strategy, deep SKU rationalization, and negotiating pricing as it shifted to a distribution 2-step sales model.

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• Quantitative and Stakeholder Deep Dive

  We conducted a comprehensive analysis of the client’s transactional data and detailed interviews with key stakeholders.

• Analytical Tools & Financial Impact Model

  We built customized analytical tools in R, Tableau & Excel to educate all pricing, SKU and customer rationalization decisions, quickly adopted as one-source-of-truth based on auditable data from central HQ data team.

• Effected SKU Rationalization of 1,000+ SKUs

  We created framework for quantitative economic and strategic analysis of the rationalization decisions, recommending a deep list of SKUs to discontinue

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  Price List Strategy Reset and Calibration

  We worked with the management team to create a new list of MSRPs based on value and competitive analysis of SKUs driving 90% of revenue. We then recommended channel, customer and customer x category adjustment percentages to generate "waterfall" of price lists applicable to each customer.

  Distribution Model Pricing

  We advised Client on both strategy and execution / negotiations with a leading Pet distributor, with deep insights on SKU-level margin economics and sharing of the profit pool across Client Distributor-Retailer-End Customer value chain.

  Rebates and Terms Leakage

  We advised Client to scrap various unconditional or poorly configured Rebates and to use new, targeted rebates and Terms "give-gets" to win the gaps in pricing negotiations

OBSTACLES

No Pricing Strategy -> Reactive & Defensive

• Nearly all pricing resided with the head of Sales, much of it reactively managed in "old school" Excel sprawl. There was virtually no process, with limited bandwidth available for each pricing decision. Most "pricing" was merely saying "yes" to retailers. The fear of losing sales resulted in "forgetting" the true cost to serve and selling unprofitably.

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• SKU and Customer Sprawl Complexity

  The sheer count of (customer x SKU) combinations presented daunting deterrence from any data-driven approach, or initiative to establish MSRP and MAP price points. The bandwidth cost to "analyze" was wearing out the entire management team, while $ ops costs were a big drain on the bottom line.

• Lack of Analytics & Pricing Tools

  The company had no central repository of pricing data or tools to generate a "one-source-of truth" analysis of pricing decisions, or how they performed. Excel sheets had no version control, no data audit trail, and were insight-deprived, often hardcoded numbers.

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  Challenges In Executive Alignment and Emotional Pricing Decisions

  The trust from HQ was low after division had lost money for years. The CEO routinely got sucked into tactical, reactive pricing "debates" sometimes on just a few SKUs for one Customer. Everyone was "involved" in even routine pricing decisions.

RESULTS
Revenue & Margin Growth:

• New MSRPs and Key Account price lists with analytical framework to win more margin $

• Client won 3+% of margin in negotiations with distributor that will also expand Revenue by 50%+ on over 30% of total Revenue

• Shaved 2-3% of revenue in unproductive rebates and poorly administered Terms concessions

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Give-Gets Pricing Execution Training:

• Trained Client's entire team to grow a new negotiating backbone, with CEO using our slides to evangelize

• Recommended establishing new pricing function, schedule of governance & approvals, and a pricing "Operating system" cadence of activities

Portfolio & Customer Rationalization:

• Eliminated 1,000+ unproductive SKUs and migrated 90%+ of customers by count to distribution.

• Dramatic reduction in cost to serve, complexity, and obstacles to manage pricing.

• Enabled Client to redirect management time and energy to creating value for customers and new product innovation

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  Analytics Tools Evolution:

  • We built tools for repeatable, reliable, once-source-of-truth analysis and visualization in R, Tableau and Excel

  • Developed Excel tools that meet Client's management team where they are at, but with rigor to serve in future pricing exercises to analyze what-if scenarios