Stop reacting to buyers’ pricing expectations
Good pricing policies lead customers to think about a purchase as a price-value tradeoff rather than as a game of manipulation to win at your expense.
The power of pricing
Sizing the prize
It’s been said many times before that of the levers a company can pull to improve performance, pricing routinely delivers the most significant results. Still, many business leaders have their doubts. In fact, pricing often ends up on the bottom of the list of changes companies make in their quests to improve performance. Why is that?
Pricings impact on the business
For some, the question is how much pricing can really deliver. Performance improvements are always welcome, but exactly how much should the business expect from pricing? Others question if the improvements that can be gained from pricing are worth it in the grand scheme of things. How much extra effort will it require elsewhere in the business? What are the unexpected ripple effects? Is it worth the risk of losing customers?
These are all legitimate concerns—and we’ve encountered them in our work helping a variety of companies improve performance through pricing. We recently commissioned an analysis of more than 100 pricing engagements that we’ve performed over the last five years to more effectively characterize the benefits achieved and address such concerns. Starting with revenue and margin improvements, we put a host of other factors under the microscope, from timeframe of benefit realization to value by improvement lever and beyond. We wanted to understand in detail how, when, where, and why pricing improvements had the desired impact on the business.
In this article, you will find selected results of this study—along with our thoughts on what they mean for companies looking to get the most from their efforts in the area of pricing.
This article originally appeared in the Journal of Professional Pricing and is the first in a three-part series. Next, we examine how one can “connect the dots” by taking a broader view of pricing. Finally, we take a look at the price one must pay for pricing effectiveness.
Pricing and Profitability Management
Our Pricing and Profitability Management practice helps clients address the spectrum of commercial pricing strategies, processes and capabilities.