Pricing

Massive Profit Improvements Via Marginal Pricing Gains

By James Marland
August 21, 2012

Over here, in the UK, we are pretty excited about the local Olympic medal haul in the “sitting-down sports.” GB netted well over half of its gold medals in the sedentary position (18 out of 29): equestrian, sailing, canoeing, rowing and of course cycling. I was able to see the road race in action at the end of my road.

Dave Brailsford (the Director of Performance for UK Cycling), when asked about the success said that it was an outcome of the focus on the “aggregation of marginal gains.”    He calculated that if he could take each component that influences the race result and improve it by 1% this would be the way to win the golds. Or put another way, all of the double-digit improvements had been done already. For example, the single-forked, carbon framed bicycle and aerodynamically designed helmet introduced in 1992 were quickly copied by other teams.

These improvements fell into three categories:

Cycle Technology. Improving pedal shape, tyres, frame (just a 1% improvement)

Athlete Performance. they could improve things like their health (washing hands more effectively reduces illness)

Wider Team. Coaches, physiotherapists, equipment, clothing, catering, hotels, planning, finance, even the families of the athletes are considered for performance improvement.

For example:

If athletes don’t have to worry about if their families are being taken care of at the velodrome, they can concentrate just that bit better. So take care of families.

After researching the effect of sweat on the weight of clothing British Road cyclists wore improved gear that meant they were perceptibly lighter.

This topic is being well-worked over in the blogosphere, as authors try to align it to their discipline. Indulge me as I try to relate it to running a pricing team.

 Do you even have a Director of Performance?

Is there someone in your organisation who is relentlessly focused on performance? They will need the mandate to rove over the whole organisation looking for those marginal gains. Is Sales Compensation off the table? Is Finance willing to consider a different way of measuring contribution margin? Can you persuade marketing to repackage products for pricing advantage? Cycling GB found that having one person who was focused every day on looking for little improvements was the best way to question the status quo.

 Place lots of small bets rather than one large one

It’s unlikely that there is one single initiative that will yield all the pricing gains. This is often expressed as a “game of inches.” Pricing decisions are made in the field every day, and you will achieve your goals with lots of 1% improvements, rather than looking for “the next big thing.”

 Look outside the obvious areas

Brailsford found that better sleep led to better performance and instructed his team that when travelling to races, take your own pillow. What are the less obvious areas for “marginal gains”?

Sales Training. Help sales people understand product differentiation

Product Literature. Does it explain the value of related products, could it include some upsell of consumables?

Help Desk. Ask them to assess customer satisfaction, and use that as a segmentation attribute

So next time you are handed an impossible goal, such as “win over half the Gold Medals,”don’t look for one big answer. Instead, seek out the aggregation of marginal gains.

 

– James Marland

  • margin management , pricing

    James Marland

    James Marland is the Director of Business Consulting at Vendavo based in London. In this role he helps diagnose Pricing Opportunities and develops business cases for pricing projects with ROI models. James has been in the pricing software space for many years, both on the customer and supply chain side: so he has a view from “each side of the table”. Prior to his pricing career he was VP of Solutions at Ariba and has also spent 5 years at SAP America. He has a Bachelor of Science degree in Mathematics from the University of Southampton.