Identifying value enhancement levers and testing them through a Proof of Concept

Data-driven price optimization leads to 12% increase in CM2

Our client is one of the leading online pharmacies in Europe, currently operating in seven countries. They offer a total of over 150,000 products and have more than 10 million active customers.

Photo of a young woman using a digital tablet while taking stock in the storeroom of a pharmacy

Challenge

Numerous interdependencies among internal measures and tests, seasonal variations, and marketing channels pushed standardized industry solutions for KPI analysis to their limits. A customized approach was necessary to identify CM2 levers without jeopardizing revenue.

Consulting Approach

Based on all available raw data, recommendations were derived through algorithmic and hypothesis-driven approaches, and their financial impact was assessed. As part of a Proof of Concept, relevant measures were tested and finally implemented.

Client Benefits and Solution

The hypothesis-based approach allowed for the testing and confirmation of relevant analytical results. At the same time, the Price Optimization Proof of Concept resulted in a 12% increase in CM2 without any loss of revenue.

Christoph Nichau, valantic Partner & Managing Director, Division Digital Strategy & Analytics

Christoph Nichau
Partner & Managing Director valantic

”The client's data team is among the best we've encountered in many years. So, it was a real challenge, but ultimately a very good example of how a fresh, external perspective can help in particularly complex situations.“

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Oliver Niehues
Senior Consultant bei wdp - a valantic company

”What excited me about this project was that we were able to collaborate very productively with the client across all hierarchy levels to achieve an optimal result. From BI and IT to the marketing department and up to the C-level, all relevant functions were deeply involved to ensure that the created analyses and derived measures are meaningful and repeatable in the future. Our client was also very open to creative suggestions for optimizing CM2. We were allowed to think broadly, test extensively, and implement alternative solutions that seemed sensible based on the test results.“

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Woman at her office desk looking at her computer screen

The Challenges

In the past, the customer company had implemented numerous growth initiatives in areas such as pricing, couponing, and marketing. Despite efforts to evaluate these measures, their results were often unclear. This lack of clarity resulted from a high level of interdependencies among internal measures and tests, seasonality, and a variety of different marketing channels. Additionally, no central entity in the organization was responsible for managing and evaluating these measures.

The high complexity of the situation pushed the available industry solutions for KPI measurement to their limits. The customer’s challenge was quickly identifying levers for the absolute contribution margin 2 (CM2) without jeopardizing revenue.

Team discussing statistics using an office whiteboard

Consulting Approach

The valantic experts adopted a hypothesis-based approach to address the challenges. At the beginning of the project, they formulated test hypotheses in areas such as pricing, marketing, and couponing, and within a few weeks, they analyzed their impact on the CM2 margin. Based on both algorithmic and hypothesis-driven analyses, the team developed a catalog of measures containing levers to directly increase revenue and CM2. These recommendations were evaluated regarding their financial impact to assess their effectiveness and create a prioritized plan with implementation recommendations.

Some of the aspects considered during the analysis phase included:

  • The impact of the company’s app on customer profitability
  • Regional clustering of customers and derivation of specific measures
  • Basket analysis to optimize up- and cross-selling
  • Quantification of the effects of advertising cost subsidies
  • Calculation of price elasticity and the influence of various product and customer attributes
  • Evaluation of the existing customer classification
  • Optimization of voucher distribution
Happy relaxed confident young businesswoman standing with folded arms in a spacious office looking at the camera with a warm friendly smile

Solution and Client Benefits

With data-driven price optimization for sustainable success: All initially formulated hypotheses were tested within a few weeks. The team analyzed 50 million records and ultimately prioritized a proof of concept in price optimization as the most effective driver for revenue and CM2. The data-driven adjustment of prices for various product clusters increased revenue by approximately 20% and CM2 by roughly 10%.

In addition to this financial success, the valantic consulting team achieved increased transparency and derived optimization measures for the following topics:

  • Economic performance of historical advertising campaigns
  • Impact of vouchers (amount, type, distribution, etc.)
  • Categorization of products in terms of price elasticity

This led to optimization in areas such as marketing budget allocation, voucher distribution, and overall pricing.

Your Contact

Christoph Nichau Partner Transaction Services wdp gmbh, a valantic company

Christoph Nichau

Partner & Managing Director at valantic