Pricing and Profitability Management
You create value but how much of this added value is reflected in your income statement
Deloitte's Pricing and Profitability Management practice helps organizations address the spectrum of commercial pricing strategies, processes, and capabilities to align them with business, marketing, customer segmentation, and channel strategies.
Starting with the drivers of customer value and layering on transaction-level analysis and insight, we help companies break down their business so they can see its many parts, identify the economic value of each product and customer, and devise ways to communicate and deliver that value to customers at prices that meet both customer expectations and profit objectives.
The fact that companies have succeeded in their endeavors to reduce cost, focusing on operational efficiency, has turned pricing into an important issue for Turkish companies in achieving their sustainable growth targets as regional and global players. Among the investments geared towards increased profitability, investments made in regard to pricing have two to four times the potential to influence profitability relative to other business markers.
Pricing can be defined as elements that enable firms to maximize their income and profitability by developing and applying policies that would help them define and sustain pricing levels in line with their brand and competitive strategy, and would steadily optimize the difference between income and cost of the commercial terms provided to the customer through promotions and services.
Pricing and profitability management are highly complex. When companies do take on pricing, it can be hard to know where to start. No matter where you start, developing an integrated perspective and gaining transaction-level insights – that is, knowing exactly what is happening during each and every sales transaction – is the key to understanding exactly how and where a company’s pricing and profitability can be improved.
Armed with these insights, you can align spending on individual clients with the value they create. For example, a discount is an investment in your customer. Are you getting the right level of return on that investment? Do you know which customers require the most technical support? All customers are not created equally. Transaction-level insights can help you understand the differences more clearly – and change your pricing accordingly.
One Piece at a Time
We offer an end-to-end approach to improving the entire spectrum of pricing capabilities and help companies create a strategic pricing structure. We provide support in various areas such as strategy, price optimization, process improvement, organization design, transaction analysis, change management, technology selection and implementation. We help the achievement of significant results and performance improvement thanks to highly-targeted pricing initiatives at each level within the chain in a short period of time.
How can we help?
•Developing Pricing Strategies: Understanding the economic value of products and services from the customers' perspective and developing pricing strategies highlighting the value supplied to customer. Achieving price optimization through restructuring commercial terms and incentives, segmentation and statistical model development are also covered under this heading.
• Increasing Profitability through Effective Pricing: Understand your profit drivers through detailed analytics – including transactional analysis, advanced segmentation and price optimization. Promotions management and increasing efficiency also fall under this heading.
• Sustain Profitability: Developing and improving pricing processes, rules, and procedures enabling the meeting of sales and profitability targets, and defining roles and responsibilities.
Deloitte has helped many leading companies improve their approach to pricing. Here are some of the things we've learned along the way:
1. Crawl, Walk, and Then Run. Addressing the full range of pricing activities can delay results and could lead to poor implementa¬tion decisions. Better to focus on individual processes first, with an eye to how each will play into the big picture.
2. Get the Facts. Too often, companies operate with so-called “tribal knowledge” that isn’t rooted in facts, or they can’t agree on a shared perspective on pricing performance and profitability. There’s one surefire way to overcome this obstacle: get the facts. With one source of truth, the organization will be better prepared to make smarter decisions.
3. Start with Value, Not Technology. Pricing isn’t about implementing or even improving a process. It’s about creating value – and that’s where you need to focus. Instead, some begin their efforts of improving pricing by purchasing commercial software or redesigning processes. As a result, the project eventually shifts away from generating value. Don’t fall into that trap. Keep margin and price improvements in your crosshairs and everything else will eventually fall into place.
4. Consider the Whole Value Chain. Pricing and profitability management should not be tackled solely from a company perspective. Today, offering win-win solutions to channel partners and organized retail vendors, developing approaches to increase the sales and profitability of the whole chain will help you earn more.
5. Examine Your Prices at the Transaction Level. Companies earn or lose money at the transaction level. Each line item on each invoice either contributes to or subtracts from your operating profit. Your pricing strategy must be built on insights at this level to be truly effective. Analytics and advanced data mining tools can help.