A mid-sized material handling company wanted to grow its revenue by 30% in 18 months, focusing on one of its five primary product lines. The company believed this product line was the foundation for the future of the company and was willing to focus resources on this line. They came to Blue Pearl looking for a plan to reach this goal.
BPC began with market research to understand the competitive environment of the line, and quickly learned that the company’s products were priced much higher than both similar products and alternative solutions. But before simply dropping pricing, we needed to understand WHY we were priced out of line with the competition. Was it driven by production cost? Did we offer superior features or additional services? After extensive research we uncovered an extremely high cost base for this line, driven by a high level of staffing and equipment resources needed to produce the product, combined with small sized production runs. The product, in fact, was costing the company more than the already competitively high price, so they lost money each time they produced a single unit.
The question quickly grew to a much broader issue – which products were profitable, and which were dragging the company down? In order to answer this fundamental question, BPC conducted a cross company revenue and expense analysis to determine the contribution of each product line. Additionally, we conducted market research to determine the price position of each product in relation to its competition. The story quickly became apparent – three product lines were profitable, covering up the failed performance of the other two.
BPC developed and executed an operational improvement plan designed to bring costs in line with the pricing allowed by the market. One product line was outsourced to an experienced manufacturer, while the other was dropped due to its lack of synergy with the overall product mix. Costs to manufacture the primary product line dropped by 32%, allowing for a drop in price that brought it in line with the competition. This increased product line revenue by 25%, and in 18 months the company had grown its overall revenue by 34% by reallocating resources and pricing strategically.