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Case Study

Delivering Profit-Optimal Prices for Configured Products

Client Situation:

Hewlett-Packard's (HP) Unix Server group managed thousands of products that could be combined into more than 10 billion configurations or solutions. The challenges of managing pricing for this extensive product line were further exacerbated by increasing competitive price pressure, accelerating product lifecycles, product proliferation, complex interactions among products and lack of a standard analytic approach to pricing. Executives were concerned about value leakage from their standard pricing strategies of "competitor-minus" and "cost-plus" pricing driven by Excel spreadsheets which didn't offer pricing analysts enough power to analyze cross-elastic effects across the portfolio adequately.

Approach:

Rapt's Price Director provided an analytic environment for understanding how HP's customers valued the components of their servers and how that value could be leveraged for profitability improvements. In price planning, Price Director was used to create a baseline for all pricing decision analyses. Sensitivity analyses were done to highlight margin trade-offs in pursuit of other strategic goals. Additional analyses identified products with the highest business leverage.

Impact:

Through the implementation of Rapt's Price Director, pricing processes were informed with readily accessible data. This allowed HP to clearly identify customer willingness-to-pay, critical competitive pressure points and the risks and benefits of specific product decisions. Price Director's robust analytic capabilities measured cross-elasticity to improve understanding of demand across the product portfolio and lifecycle analysis that improved pricing of new products.

Deployment of Rapt Price Director helped HP increase its net revenue and improve its market share position without taking unneeded margin hits. North American Enterprise Controller Mark Hillstead noted that the benefit to the company was "immediate and measurable" and that "Rapt increase[d] revenue by $15M per quarter in our Unix North America division through better pricing decisions."