Did you know that your garbage company is sizing you up? Deciding whether or not you will accept a price increase to enhance their profit margins? For large haulers such as Waste Management Inc. they have the resources to crunch the numbers and see who is most likely to accept a price increase and when they need to price aggressively. You might be surprised by some of the comments below from an article in Information Week, Sept 2011.

The trash handling and recycling company, which had $12.5 billion in revenue last year, created a price-optimization system that uses customized statistical models of the factors that drive market prices and price sensitivity in each of its 25 regions. Through a Web portal, pricing managers can see customers whose contracts are up and the likelihood they’ll accept or reject a price increase.

This is a concept called pricing sensitivity. In plain English it means “If we tell Bob his garbage bill is going up by 20% will he just shrug his shoulders or will he revolt and find a better price?”.

If you haven’t complained recently about service or pricing chances are you’re a good candidate for a price increase. But if you meet some of the following criteria you may be spared…

Pricing managers then apply their judgment on how to proceed. Is the customer in a key market that Waste Management’s trying to break into? Is this a customer who has complained recently about poor service? Is it on an existing truck route, thus cheaper to service?

Waste Management is using software now to figure out “pricing optimization” which means figuring out which customers they can squeeze more profit out of. As a big company even a small increase in pricing for 50% of their customers translates into a nice increase in profits. Pricing excellence is code for “Put rates up as much as possible”.

Waste Management needed the pricing app for several reasons. One is volume. The company provides more than 100,000 service quotes a month, and relying on the experience and instinct of managers is “not a scalable model,” says CIO and senior VP Puneet Bhasin. Also, the company has started a multiyear effort to increase revenue and cut costs, and it’s counting on “pricing excellence” to meet its goals (see Waste Management’s New Model: Garbage In, Profits Out).

Implementing a pricing optimization system can be daunting. One reason is that price can be an emotional issue. If an airline passenger who paid $500 finds that the person next to him paid $250, the $500 traveler isn’t happy.

Waste Management’s services, however, are different because every bid is unique, says Bhasin. Location, type of waste, weight and volume, scrap value, rules on where garbage can be taken, and competing services all go into its calculations.

If you don’t want to find out you’re the lucky customer on the the block making profits for Waste Management while your neighbours have the cut rate deal you might want to have Keystone review your current cost structure and see if you’re flying economy for First Class pricing.

 

Keystone is Canada’s leading waste consulting and recycling optimization firm. Since 2007 we’ve helped our clients save over 30% on waste and recycling expenses while increasing overall waste diversion.

www.keystonewaste.ca

888-892-1796