Vivid, an HDTV screen manufacturer, faces declining revenue despite increasing sales volumes. The case identifies rampant discounting, misalignment in sales incentives, and an imbalance in value capture across the supply chain. The proposed solution includes revising sales compensation, implementing a granular discount authority system, and adjusting pricing to achieve a more equitable surplus split with customers, targeting a higher average selling price.
Key Insights:
- Rampant discounting can erode profitability even with increasing sales volumes, especially if cost reductions are leveling off.
- Misaligned sales incentives (volume-based instead of profit-based) can drive excessive discounting, undermining pricing strategy.
- A thorough understanding of the value chain and customer switching costs is crucial for identifying pricing power and opportunities for surplus reallocation.
- Even with patent protection, pricing needs to consider customer perceived value and the competitive landscape to optimize profit capture.
- Average selling price (ASP) calculation, considering discounting and volumes, is a key metric for evaluating pricing effectiveness.