Framework: the Power of Value & Pricing Strategies
In the perennial pursuit of profit improvement, most companies have mainly focused on the cost side of the equation, through initiatives such as supply chain management, rationaliza-tion of production, six sigma programs to reduce wastage, etc.
Yet, one value creation lever which holds most potential for driving profitability has been relatively untapped:- Pricing Management.
Pricing and Value Strategies are the most powerful levers an organization can pull to positively impact its profit performance.
Yet, despite the importance of that lever, many companies, as large & sophisticated as they may be feel their current level of performance for Pricing & Value management is weak. The table below summarizes the results of a survey conducted last year through the LinkedIn ‘Pricing & Value Strategies’ club. It shows that the vast majority of large companies today feel that their Pricing & Value management performance is currently weak. Worst, even the best performers (top 10%) feel that they are only doing an ‘adequate job’ of it.
The key weaknesses identified include
- An inability to quantify & communicate the Value of their offer to customers
- The admission that they are ‘leaving a lot of money on the table’ through their Discounts & Rebates systems (& promotions)
- The lack of adequate research on Value drivers & perception, on customers Willingness to Pay or on Price elasticity
- Lack of real & effective pricing management infrastructure (tools, processes, systems, culture, organization, …)
There you have it, the most important profit levers for the company are not being properly & effectively managed….
But the good news is that things are starting to change under the influence of two key trends:
- As efforts of rationalization & cost cutting are starting to show their limits, top management is increasingly recognizing the power of Value & Pricing
- The performance of Pricing & Value management approaches is continuously improving, thanks to the development of more sophisticated pricing tools & pricing analytics (research, statistics, modeling, …) and thanks to cheaper internet based research (surveys, competitive intelligence, …)
For companies that have embarked on that road, the rewards are considerable
Companies that have put Pricing & Client Value at the core of their strategy & actively manage it vastly outperform those that don’t (by a factor of almost 4)