Implementation of product pricing processes and a discount framework
Tikkurila is a Finnish manufacturer of premium decorative and industrial paint with well renowned local brands such as Tikkurila, Alcro, Beckers, Teks, and Vivacolor. End-users include paint professionals, consumers, and industries that are served through hardware stores, paint stores, and Tikkurila’s own professional stores.
A history of high-profit margins and stable growth in combination with a complex distribution structure had led to weak structures and low visibility within the Swedish organization.
When the trend turned towards stagnating sales and a declining margin the structural problems surfaced and became visible within the organization. A legacy of outdated customer contracts emerged.
“There was a clear need to get the structure and rules for these in order to see how these discounts affect our profitability”, says Jan Lindgren, Country Sales Director, Tikkurila Sweden.
As a first step, Tikkurila decided to use external help to find the root cause of the profitability issues.
The cooperation went well and the project was carried out systematically with a good structure and it stayed on schedule. Capacent's consultants had a good understanding of our business (situation and challenges). They brought a clear vision of what we should do, which was a big plus.
Country Sales Director, Tikkurila Sweden
Phase 1: Pricing and profitability analysis & qualitative assessment of pricing
The first step of the project was to conduct a comprehensive pricing and profitability analysis. The analysis highlighted that profitability issues were due to a large spread in kick-back bonuses and discounts.
During the assessment, it also became apparent that Tikkurila was lacking internal structures for product pricing. Pricing ownership and processes were unclear which often led to issues when new products were launched. The lack of structure had also resulted in a low level of trust towards the central price list within the sales organization.
Phase 2: Long term improvements
The analysis revealed variations in price levels that needed to be managed to enable fair pricing towards the customers. A formalized discount framework and sales policy with target price levels and escalation routes based on customer size, potential, and performance were created and rolled out in close collaboration with the sales organization. The purpose of the framework was to ensure profitability as well as fair pricing between customers and give the sales representatives tools in negotiations. Training sessions were also conducted to create awareness and to increase transparency. The framework was supported with a negotiation calendar in order to roll out new price levels.
A local cross-functional pricing group was also formed in order to be more proactive in the product pricing. Local processes were created and connected to the central pricing and product launch processes.
A large part (about 80%) of the sales policy was rebuilt in this project. Financially, we will start seeing results next year, since our negotiation rounds start during Q3. At this point, we will also see how well the new sales policy works in practice. As sales has been very involved all along the project there is a high confidence that we'll see strong results.
A harmonized, actionable discount framework was launched for the professional market. The result was used as a foundation for the local sales policy. It led to increased transparency and clear mandates within the sales organization.
Sales representatives and management were provided with the right tools to efficiently generate price level suggestions for customers. Furthermore, a negotiation calendar was set with prioritized customers in order to increase profitability.
Local price setting and group processes were established and aligned with the central organization. Actionable meeting check-lists for different stages of the pricing process were prepared with clear responsibilities among the participants.
“The cooperation went well and the project was carried out systematically with a good structure and it stayed on schedule. Capacent’s consultants had a good understanding of our business (situation and challenges). They brought a clear vision of what we should do, this was a big plus,“ summarizes Jan Lindgren.
Read more about our insights on pricing:
Or book a meeting with our Pricing expert Lotte to discuss the possibilities to improve your pricing.