The client faced a critical threat: its core and most profitable product was losing margin and market share. The product—a bundled package of more than 30 services, including insurance, risk management, and credit—was genuinely superior to competitors' offerings and had long been the category sales leader. But competitors were attempting to commoditize it and were competing aggressively and successfully on price. The client needed ways to differentiate the product to maintain margins.
A BCG team of five (1 partner, 1 principal, 1 project leader, 2 consultants) took on the assignment. Until now, the client had believed that value in this market was created by product aggregation and bundling. Consequently, it had never disaggregated the product to understand each element's stand-alone benefits or competitive set. The BCG team challenged this assumption.
Working closely with the client, the team thoroughly analyzed the product, component by component, to determine the key points of differentiation between it and competitors' offerings. The team also analyzed how the company's sales force had positioned and priced the bundled product in the marketplace. Finally, the team developed a framework to quantify the real benefit each component provided to customers and to define different pricing structures.
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The team's analysis yielded several key conclusions. First, there were indeed strong points of differentiation between the product and competitors' offerings. These fell into two categories: components that competitors also provided but in which the client had a decided and perceptible quality edge; and unique components that only the client offered. But customers did not appreciate these important distinctions. By highlighting them and articulating the likely benefits, the client would effectively counter the competitors' ability to use an inferior product for price competition.
Second, the team concluded that a redesign of several of the components could substantially increase the product's value to customers. The team defined a series of options for reshaping these components, including new features and support services.
Third, the team found that the product's pricing bore little relation to the benefit realized by customers. Instead, it had been based solely on the company's internal margin targets—that is, cost plus a nominal percentage. By linking pricing to customer benefit rather than cost, the team found opportunities to realize higher revenues from key components.
Finally, the team recognized that the success of the initiative depended almost entirely on the ability to train, motivate, and support the sales force. To be successful, the client would need to develop specific tools and training to reorient the sales force to convey the right messages to the market quickly.
Excited by BCG's findings, the client engaged BCG to help with execution. Rapidly, BCG developed customized pricing tools that allowed the company to determine the benefit from each component service of the product for individual customers and to price and structure the offering accordingly. To improve the offer, BCG redesigned a number of the product components to make them more appealing to customers. Finally, BCG identified a sales, marketing, and pricing approach, and supported the sales-force training to allow the client to capture increased revenue opportunities.
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With an enhanced product and the tools necessary to articulate its value, the client was able to successfully defend itself against competitors and realize a 15 percent revenue increase, with no significant investment or increase in operating costs.
In addition, this strategy provided a boost of support and enthusiasm for the sales force, which again felt motivated and more confident about reaching out to existing and prospective customers.
The BCG team was rewarded with some motivational praise from a demanding client: "This is the best consulting team we have ever worked with."
