case study - Pricing Effectiveness and EfficiencyA large railroad's general merchandise marketing department needed a better way to understand its existing portfolio of prices and more effectively and expediently respond to new price requests. Business managers had access to a variety of mainframe reporting systems, but each system offered only part of the picture needed to respond properly to bid requests. In many situations, managers had to go back to the original paper contracts for the most granular data.
Since it was difficult to respond quickly to urgent customer inquiries, proactive marketing often took a back seat to "fire fighting." The client's history of mergers complicated the situation: separate pricing strategies pursued by the predecessor companies had left a legacy of sometime wide disparities in existing prices for comparable services. Norbridge contacted the client, explained our five-stage yield management framework, and offered to work together on a pilot project to see if there was an opportunity to put dollars on the bottom line.
ApproachWe set up the initial work in two phases: a pilot to scope the magnitude of the opportunity and realize short-term value, and a follow-on effort to roll out the initial work more broadly if warranted.
The first step of Phase 1 was to "link the back end of the pricing process to the front end" - and thereby understand where the existing pricing was not supportive of the current pricing strategies. The team developed a massive database, which combined pricing and contract information with transaction data including freight movement data. This allowed us to ask: How much volume has moved at what price in each market segment? By preserving the granularity of single shipment data, we could then segment the business by commodity, customer, equipment type, service type, and geographic lane, at varying levels of aggregation.
The next key step of Phase 1 was to analyze the data and identify low risk/high return price change opportunities. Prototype analytical approaches and tools were developed using Excel pivot tables. Working side by side with experienced market and customer managers, we assessed various possibilities. By viewing data in a variety of ways and structuring certain standard views, we uncovered a number of specific opportunities that could be immediately acted upon or slated for decisive future action as contracts expired. This propelled us into Phase 2.
The key task in Phase 2 was to further develop and standardize the tools and processes we had been prototyping and role out the processes and tools to the rest of the marketing and sales department. We developed a training course to teach advanced Excel skills where needed, and taught the department not only how to execute the required analyses, but also how to develop new processes and approaches to match the unique circumstances of their markets. Each manager was then held accountable for identifying immediate pricing opportunities. Status reports were held every two weeks to review progress, and "Show and Tell" sessions provided a forum for business managers to relate to their colleagues how they were applying the new tools and data to create value.
We wrapped up Phase 2 by developing further training materials and documentation, and by creating a set of computer programs to automate periodic update of each manager's data.
Value AddedThe new processes resulted in a top line impact in the tens of millions of dollars and improved margins while maintaining or growing volume. Job satisfaction improved as marketing and sales managers could now address routine inquiries quickly, and focus more time on selling, market analysis and market development, and correspondingly less time on administrative tasks.
Upon completion of our initial work with the general merchandise market area, Norbridge was then further engaged to assist in rolling the new processes and tools out in two additional marketing groups. Over the course of several years, more than 40 business managers were trained in the new analytical processes and tools, and more than 100 market segments were brought into the process. The client continues to be an industry leader in both yield and volume growth.