CASE STUDY

How we enabled a large manufacturer to implement a dynamic pricing strategy based on the quality produced?

Sep 29, 2022

Highlights of the Case Study: 

Particulars Description 
Client The client is a US multinational conglomerate with operations in multiple countries across five continents. It is a market leader in the chemical, steel, and aluminum products manufacturing business. 
Business Challenge The client was facing margin pressure across three commodities as their prices were hardening and hence partnered with Quantzig to implement a dynamic pricing strategy based on the quality produced.  
Impact Quantzig’s pricing analytics and optimization solutions enabled the client marketing team to respond immediately to the changes in the market conditions, increased the profit margin, and the client could make new investments and launch new products within the same cost structure. 

Game-Changing Solutions for the Manufacturing Industry   

Despite revenue growth, the manufacturing industry is witnessing a shrink in profit margins  owing to a significantly high share of commodity prices. This margin pressure will continue to accelerate across the manufacturing industry due to inflationary pressures in the form of rising input costs. Therefore, it makes sense for manufacturers to pass on this input cost partially, if not entirely, to the consumers. Dynamic pricing can help mitigate the margin pressure on manufacturers and enable them to remain in the competition.  

Quantzig’s portfolio of pricing analytics and price optimization solutions track and monitors price gaps in real-time based on competitor analysis, customer spending ability, seasonality, weather, etc., so that manufacturers can redesign their pricing, procurment, and production strategy to improve topline as well as bottom-line growth. 

The Challenges of the Client 

Our client is a US multinational conglomerate with operations in multiple countries across five continents. It is a market leader in the chemical, steel, and aluminum products manufacturing business. The client has been facing margin pressure across all three commodities as their prices are constantly augmenting, rising more than 60 percent in the last six months. Therefore, it partnered with Quantzig to implement a dynamic pricing strategy by segregating products based on quality.  

The client, till now, relied on the manual know-how to design and update the pricing strategy, which resulted in huge price gaps and extremely optimistic pricing that failed to satiate the demand of a complex B2B manufacturing process. The client wanted our analytics solution to serve two purposes: 

  • Update the pricing based on the grade of raw material used in the manufacturing process 
  • Update the pricing as and when the factors affecting the margin change 

Quantzig’s Dynamic Pricing Strategy and Price Optimization Solution for Manufacturers 

Quality-based pricing is a complex strategy in terms of implementation because quality perception differs and frequently changes with the changes in the living standard and income criteria. Therefore, we began by identifying the market and segmented it based on three key factors – income, lifestyle, and product preferences. 

Once the groundwork was done, our analytics team, leveraging the price optimization tools, created an algorithm-backed application that automatically updated the price as any new market information was triggered. This way, we enabled the client to set up quality-aligned and market-aligned prices. 

Impact Analysis of Quantzig’s Dynamic Pricing Strategy in Manufacturing  

Quantzig’s pricing analytics and optimization solutions helped the client achieve the following results: 

  • Enabled the client marketing team to respond immediately to the changes in the market conditions, input cost changes, customer preferences, and competitor pricing instantaneously 
  • Increased the profit margin from a four-quarter low of 15 percent to a positive three percent within three months of partnership 

As a result of this collaboration, the client converted the short-term partnership into a long-term contract and rolled out its dynamic pricing strategy in all its pricing decisions. 

Key Outcomes 

Global spillovers have aggravated the volatility in global commodity prices affecting the manufacturers’ profit margin across regions. These significant uncertainties kept denting the client’s bottom line when the topline reflected impressive growth. To contain the shrinking profit margin amid rising input prices, the client wanted to implement a dynamic pricing strategy based on the various grades of aluminum, steel, and chemical produced. Therefore, with Quantzig’s pricing analytical solutions, the client could align its pricing and quality to meet the customer’s expectations, income, and spending ability. This helped client make new investments and launch new products within the same cost structure. 

Broad Perspective on Pricing Analytics in the Manufacturing Sector 

Artificial intelligence has the power to personalize pricing strategies based on critical metrics and alter the profit growth trajectory from negative to positive. Dynamic pricing uses AI-driven algorithms to find the ideal pricing for situations such as peak time demand, seasonality, changes in customer behavior, competitors’ tactics, and cost changes. It helps improve revenue growth, raise profit margins, and eliminate the guesswork from all pricing strategies. 

Key Takeaways 

Quantzig’s pricing analytics and optimization solutions enabled the client’s marketing team to achieve the following: 

  • Evaluate the customer database to generate and interpret insights into customer behavior and earning capacity 
  • Develop multiple what-if scenarios and measure the impact of price changes on the market share 
  • Bridge the gap between the client’s price offerings and the customer’s paying capacity 
  • Adapt quickly and in time to the market switchovers and competition 
  • Improve profit margins, leading to an overall annual return on investment (ROI) of 50% 

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