MCKESSON MEDICAL-SURGICAL PRIMARY CARE IMPROVED PRICING AND INSIGHT GENERATED MILLIONS IN GROSS PROFITS

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1 CUSTOMER SUCCESS STUDY MCKESSON MEDICAL-SURGICAL PRIMARY CARE IMPROVED PRICING AND INSIGHT GENERATED MILLIONS IN GROSS PROFITS Realize Your Potential

2 OVERVIEW THE NEED A changing health care landscape, along with an increasing shift of customers to online channels, created a need for modernized solutions that could provide competitive, marketrelevant pricing across 2.5 billion buying combinations. THE SOLUTION PricingPRO empowers pricing teams to formulate winning pricing strategies, enhances control over execution, and provides prescriptive recommendations for the sales team. THE BENEFIT With competitive online pricing, McKesson Medical-Surgical Primary Care has significantly reduced the number of pricing exceptions which has enabled sales teams to focus on valueadded selling. 2

3 CHALLENGE For McKesson the oldest and largest health care services company in the US with $190 billion in revenue the drive to be the foundation for better health continues to be as important as it was back in 1833, when the company started. While company values remain consistent, the surrounding health care market has faced a lot of change in recent years with unprecedented consolidation across the industry as companies seek to find efficiencies to better serve their price-sensitive customers in this highly regulated environment. The price pressure was concerning and Peter Barr, Senior Director, Pricing McKesson Medical Surgical, recognized that their peanut butter approach to pricing set them up for potential lose-lose situations. Either we re losing sales with prices that are too high, or we re losing margins by underpricing, he said. With more and more purchasing happening online, McKesson teams needed to seek a new solution that would enable them to provide competitive, profitable pricing to both current customers and first-time buyers. 3

4 SOLUTION PROS price guidance and pricing science is the foundation for our pricing Peter Barr Senior Director of Pricing MCKESSON MEDICAL-SURGICAL PRIMARY CARE PROS has really helped us with their science to make sure that we ve good, competitive, logical pricing on every item for every customer McKesson turned to PROS to explore the best way to manage pricing in its medical surgical division, which includes 900 sales people and a catalog of more than 150,000 products everything from bandages to exam tables. PROS price guidance and pricing science is the foundation for our pricing, says Barr, explaining that PROS is a critical part of their business in three core areas: for exception price setting, for online ordering and for identifying price outliers. Two key components of the PricingPRO have been essential to McKesson s solution: Its comprehensive price management platform which provides consistency, logic, and accuracy in pricing. Dynamic price guidance derived from patented segmentation science and delivered across sales and online channels. Since there was no systematic way to provide teams with guidance prior to PROS, most pricing requests were handled as time-consuming exceptions. The existing strategy set margin targets at broad category levels and overlooked the dynamics of varied customer segments. McKesson teams acknowledged there was opportunity to improve their revenue and profit attainment. Barr mentions that with online ordering we really needed specific pricing for specific customers and we really wanted to have a better understanding of what market levels were so we could be pricing appropriately. 4

5 Customer Online Ordering Platform Customer Specific Pricing (Previously Ordered and Quoted) Account Manager Guidance for Customer Specific Pricing First Time Purchases and Non-Negotiated Pricing PROS Segmentation-Based Price Guidance on 2.5B Customer-Item Combinations APPLYING SCIENCE TO 2.5 BILLION BUYING COMBINATIONS Using PROS patented segmentation science, McKesson was able to remove the manual effort in providing customer-specific pricing and provide pricing guidance for 2.5 billion possible customer buying combinations. With recommended guidelines on premium, target, and floor pricing fed directly into McKesson s internal systems (they use Salesforce.com for CRM and SAP for ERP), marketrelevant pricing is easily accessible and integrated into their sales tools. A PRICING FOUNDATION THAT ENABLES CONSISTENCY AND EFFICIENCY Our teams can see what the customer is paying along with the price guidance from PROS, says Barr, adding that we now have insight into market levels, so when we re setting prices, we can see what similar customers are paying for those items. As a result, pricing exception requests have been greatly reduced, quote turnaround times are faster and more efficient, and customers have expressed satisfaction with being able to access competitive pricing as well as negotiated rates through online channels. The PROS pricing foundation which supports and maintains consistency across both sales and ecommerce channels is contributing to a better online purchasing experience and ensuring competitive, logical pricing on every item for every customer, says Barr. 5

6 KEY PRICING OBJECTIVES: Enabling pricing teams: To easily understand market levels and maintain price consistency by providing visibility into what similar customers are paying for similar items. Online pricing: To ensure competitive online pricing for new items that customers purchase, so that the pricing is specific to that customer for that item. Identifying outliers: To understand the root cause of any margin decline and enact strategies to correct any outlying negotiated prices. EMPOWERING TEAMS TO IDENTIFY OUTLIERS AND PROFIT LEAKAGE With unprecedented price pressure, it s necessary for McKesson to stay aware and ahead of margin decline. PricingPRO s capability to provide guidance at broad or narrow levels gives reference to where prices are below market levels, whether that s an entire product line, a single customer, or a specific SKU. This capability allows McKesson to put a plan in place to correct negotiated prices that are identified as outliers because they are significantly below market. We have very specific, very targeted pricing capabilities, says Barr, explaining that PROS provides solid science-based, peer-based pricing that shows pricing for a particular item that is below margin for a particular customer. It s really easy for teams to see the below-market prices across their accounts with visual cues that show them where specific prices are off, says Barr. With PricingPRO, McKesson Medical Surgical is able to: Fight downward margin pressures working in partnership with its sales teams. Use peer-based comparisons to identify price points below market levels. Establish specific goals for improvement based on target pricing guidance. Empower teams to find best fit solutions to achieve and maintain market-level pricing. 6

7 RESULTS As a result, McKesson has significantly reduced quoting time and increased the quote-to-close ratio which has led to increased gross profits and margins. We are realizing and exceeding all expectations for what we re trying to do with pricing, he adds. Our performance has been exceptional. The journey to improve the customer quoting experience never ends. With McKesson s acquisition of PSS (another PROS customer), they have been able to merge product and transaction data from the two companies into a singular pricing platform. With this integration, McKesson has experienced excellent sales force retention, seen preferred suppliers growing three times faster, and improved cost and payment terms with suppliers. With a pre-existing foundational pricing platform for both companies, McKesson has been able to accelerate its realization of profit synergies through the acquisition. Control Guidance Formulate winning pricing strategies. Expand and sustain profitability. Modernize business processes. Better insight into pricing practices. Enhanced control over pricing execution. Prescriptive pricing recommendations. Turn pricing into a strategic advantage. 7

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