Pricing and Profitability Management
The Problem with Pricing
If your organisation is like most, strategic pricing is often hard to manage because there is an incomplete knowledge of all the disparate activities and how to coordinate them. In many businesses, each function – Finance, Marketing, Sales and Operations – works with a different set of data to make pricing decisions. Different functions also often define goals and reward performance using different metrics, which can be in conflict with each other.
The Potentials of Strategic Pricing
Effective pricing management can help you increase profitability by improving the way you analyse, set and deliver prices, including enforcing pricing policies. The benefits can be realised in both good times and bad. The tools and discipline of pricing and profitability management can help address the immediate issues presented during economic instability, as well as help position a company for long-term profitable growth. A comprehensive pricing strategy is made of multiple layers which create a foundation for price setting:
- The foundation of Strategic Pricing is Value Creation, or determining what the best value for the customer is.
- The next step is to establish the Price Structure. The pricing of a product should match the delivered value and cost to serve.
- Once the Price Structure has been determined, marketing can develop the Price & Value Communication to the customer.
- The Pricing Process must be able to stand up to aggressive customers and competitors – it should rather influence the expectations and not react to them.
Deloitte is routinely ranked as the top pricing practice in the world by leading analysts. Maybe that’s because we offer an end-to-end approach to improving the entire spectrum of pricing capabilities, not just bits and pieces along the way. Strategy. Price optimisation. Process improvement. Organisation design. Transaction analysis. Technology selection and implementation. Change management. We have the people and tools to put it all to work together.
Tangible and immediate bottom-line benefits of a Pricing Programme
- Add 1 to 3 percent of addressable revenue to the bottom line in the first six to 12 months
- Deliver better visibility to pricing and margin information to improve decision making
- Increase control of transaction profitability through active management of pricing execution
- Reduce margin leakage by improving measurement and management of sales activities
- Improve customer profitability by linking cost to serve with pricing levels