An industry leader in high-end personal services was experiencing lower-than-industry-average profit margins due to price leaks. The company, a $22 million privately held firm with 450 employees, is considered the industry benchmark in service performance and satisfaction. The company executed a premium pricing strategy designed to support its high-end image.
Management believed that service pricing was largely realized at the list-price level and that discounting was applied minimally. The company did not monitor net realized price.
Price Point Partners pricing experts analyzed the firm’s historical pricing data and pinpointed price leaks through discount programs. Much to management’s surprise, over 30 different discount programs were identified. Most were legacy programs that had accumulated over several years but were still being applied on a day-to-day basis.
While the company occasionally added a new discount category to build loyalty, balance seasonal revenue or attract new clients, virtually no programs were discontinued and many became duplicates. The result was over $2 million in discounts annually, nearly 10% of net revenue.
A primary cause of this margin leakage was the loosely enforced policies for discount authority and usage. Virtually each one of the organization’s 450 service professionals had the ability to use almost any discount at any time.
Price Point Partners pricing experts helped the firm rationalize the discount programs and create new policies to effectively control the use of discounts. Twenty discount programs were eliminated while 10 were retained to support customer loyalty objectives.
The result was the elimination of $670,000 in unnecessary discounts and a boost in profit of 3 margin points.