One of our WTP clients is the market leader in the Dutch Do-It-Yourself market. They had a contract with a supplier based entirely on a commodity price development. However, in recent years, with the huge raw material price increases, the supplier’s profit margin was also completely distorted.
The raw material price of this item determines 50% of the item’s total should-cost price.
When raw material prices then increase by more than 100%, this has a huge impact on pricing.
Approach with WTP
By not only looking at the commodity price but by requesting a Bill of Material from the supplier, the actual raw materials and weights were entered into a WTP product calculation and the price of the product was shown.
To make a proper should-cost calculation, it is important to identify the following information:
- Country of origin of the product;
- The industry in which the product is produced;
- The raw materials used in production;
- The weights of the raw materials used;
- Additional costs involved in producing the product.
With the above data, a total calculation of a product emerged. With this information, a mail was prepared to the supplier. Here the client asked for understanding and reconsideration. In this mail, they substantiated all the figures using WTP data.
The pricing of these types of items was adjusted. The copper price became less dominant from then on, making them save 50% of the requested price increase with WTP. Unfortunately, the raw material price is so high that a price increase cannot be avoided. However, more than €100,000 has been saved in the price increase through this method. In addition, this will also have a great effect on the upcoming price changes.
Altogether, this took about 7 hours of effort. So that can be called a nice saving.