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Building a leading pricing capability
Where does your company stack up?
The game is changing. This is the conclusion reached by hundreds of executives participating in a pricing capability benchmarking study when asked to reflect on the pricing challenges they face. The study sought to measure the impact of pricing strategy and pricing execution on profitability and revenue growth. The results provide compelling evidence that the ability to manage pricing strategically can be a source of competitive advantage that drives strong financial performance.
The role of pricing strategy
From financial services to manufacturing to consumer goods, surveyed executives report that growing profits in competitive markets has become an ever more difficult task. For many, the challenge stems from globalization of markets that has unleashed new competitors with lower costs and innovative business models. For others, the change stems from the increased knowledge and sophistication of customers that have become experienced at extracting price concessions.
Of those surveyed, a majority of executives reported substantial changes in their competitive environment. The more astute managers also recognize that the structural shifts in the global marketplace are rendering many traditional approaches to pricing obsolete.
They are beginning to ask critical questions about the role of pricing in their overall business strategy:
- How can I transform pricing into a strategic growth lever?
- How do I enable my organization to make consistently sound pricing choices to increase long-term profits?
- What is the ROI of building a more robust pricing capability?
About the study
To help address these questions, in 2009, Monitor conducted a benchmarking study of more than 200 companies. The study sought to measure the impact of pricing strategy and pricing execution on profitability and revenue growth. The results provide compelling evidence that the ability to manage pricing strategically can be a source of competitive advantage that drives strong financial performance.
The senior executives who participated in the survey came from a broad spectrum of industries including healthcare, financial services, consumer products, manufacturing, retailing, high tech and services. They responded to a detailed survey assessing the nature of their pricing strategies, market structure, organizational performance (profits and revenue growth), pricing capabilities, incentives and more. Follow up interviews were then conducted to provide additional insight.
The participants revealed that having a pricing strategy is important, but not all pricing strategies are created equal. Leading edge companies focused their pricing strategy on maximizing their ability to create customer value and capturing that value through commercial excellence. As described below, the results provide a call to action for organizations that have yet to discover the benefits of strategic pricing.