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Why CEOs should pay closer attention to pricing
The problem with pricing (It's you)
If a business aims to create more value for its shareholders and customers through smarter pricing, the CEO must lead the way.
Pricing has evolved
For all the moments that matter in business, there’s only one point when money changes hands—the point of purchase. That’s when the price you charge captures the profit you’re in business to generate. Or fails to.
Our research has consistently shown that pricing has up to four times more impact on profitability than other investments. A 1 percent improvement in pricing can boost profit by more than 12 percent.1 The return on an investment in pricing can easily top 300 percent in less than a year.2
With so much money at stake, it’s hard to understand why so many companies neglect pricing, leave it to the sales force, or rely on lower-level analysts instead of moving it onto the CEO’s agenda. If your company’s view of pricing isn’t high-level and cross-functional, we believe it’s wrong.
As a business discipline, pricing has evolved far past the basic intersection of supply and demand taught in high school. Companies have more and better pricing capabilities at their disposal than ever before. Whether they’re using them effectively is a different question.
Moving beyond traditional pricing methods takes courage. But so does every business decision that matters. If a business aims to create more value for its shareholders and customers through smarter pricing, the CEO must lead the way. Consider this guide as a good way to get started.
Pricing isn’t simply an operational tactic. It’s a strategic lever that both reflects the company’s overall plans and helps make them happen. That means it’s part of the leadership agenda. One of those vision things.
That’s right: Another issue wants a seat at the big table.
If pricing is moving up on the CEO’s agenda, what’s going to drop off? Only you can answer that, but remember two important things: Pricing is something customers see first-hand with every purchase, and it’s where the money comes from in the first place. In truth, pricing is already on your agenda, lurking deep inside almost every other item. You just need to pay attention.
1 Compustat, Deloitte Analysis
2 Preslan, Laura, “Price Management: Conventional Wisdom is Wrong,” AMR Research Outlook, February 2, 2004