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Fasteners Pricing Strategy Case Study

Fastener Manufacturer Leverages Price Sensitivity and Lifts Profits 5 Margin Points

A leading manufacturer of specialty fasteners used in heavy equipment and architectural applications was struggling to maintain control over the pricing of its 40,000 potential SKUs. The firm carried raw material inventory and produced the exact specified fastener on a made-to- order basis. The combination of possible sizes, finishes, thread pitches and other product features made for a complex pricing environment.

While the firm had developed its own pricing system to accommodate the myriad of product iterations, management believed they were leaving money on the table. At the heart of their system was a cost-plus pricing strategy that used the same formula to determine prices across the board. Estimators would calculate the cost to make each fastener and add a flat percentage.

Price Point Partners performed an analysis on the company’s historical pricing data using PricePoint’s proprietary analytics engine. The analysis revealed that higher-value fasteners were being priced at the same level as commodity fasteners. And all customers, regardless of their size and price sensitivity, were priced at identical levels.

Price Point Partners studied the full range of products and customers, and divided them into categories:

  • Commodity products were placed into one category where pricing was highly sensitive. This category was characterized by a high level of competition and a low level of product differentiation.
  • Each of the other categories represented a progressive increase in product differentiation and value. The final category was reserved for highly specialized products.
  • Customers were divided into five categories, based on their price sensitivity. Sensitivity factors included customer size, location and market segment, to name a few. A price sensitivity factor was applied to each customer segment.

Prices for commodity products saw little to no price changes while the prices of specialized, high-value products increased 6% - 10% or more. From those base prices, individual customer pricing would be adjusted based on the customer price-sensitivity formula.

The new architecture was loaded into the firm’s existing pricing system. The resultant architecture, based on price sensitivity and value, delivered a profit improvement of 5 margin points.