case study: reducing complexity, increasing profitability

Blue Stone has been involved with a number of projects where the client had particularly complex pricing scenarios. One good example is a current project involving a rental company servicing the construction industry. This client was structured into 10 legal entities operating in the UK each of which had a separate computer system. Their customers often traded with more than one entity and customer and pricing data was inconsistent across the companies. Our project was to identify and implement a new computer system which would permit (amongst other things) a common definition of customers and their pricing deals. This project is now mostly rolled out.

The pricing model in the rental industry is notoriously complicated. Here there are about 20,000 product lines, each of which has a list hire rate. But customers are granted a variety of deals which amend the standard pricing. Many different approaches are in use for instance:

• a flat discount of x% off all products
• a customer special discount deal which offers percentage discounts off ranges of products. In theory there could be a separate discount percentage for every product though this is rarely used. Unfortunately, the percentage discount offered may not be from the current year’s price list. The customer may agree a long-term deal whereby their discount percentages are linked to prior-year list prices
• special absolute prices where customers are given a fixed price by product rather than a percentage discount from a list price. This has the advantage for the customer that when list rates increase over time the customer’s special price remains unaltered
• end of period rebates. Some customers (in addition to the above) attract an end of year rebate based on turnover, length of hires, etc
• additionally, charges for some products for some customers are suspended in certain circumstances, eg over bank holidays.

The project was originally about putting in place a system to solve these pricing complexities in the UK but in the intervening time our client opened up operations in Southern and Northern Ireland. These new territories brought additional issues to light. The product ranges were not the same but overlapped significantly. It was not possible to adopt UK prices with a Euro conversion as local competition meant that a local price strategy was required In Southern Ireland particularly it emerged that wildly different rates could be used in different geographical areas (not an issue in GB) because of the local nature of some customers. VAT treatment issues were also identified. Some customers trade both in Great Britain and Ireland and would be exposed to both sets of prices if an integrated approach isn’t adopted.

The implementation of the new system with appropriate data structures has enabled our client to reconcile the prices across the different companies in the group and present a uniform approach to their customers.

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