The Pricing Excellence Framework
PriValEdge’s mission is to support its clients in the development & implementation of effective Value & Pricing strategies , with direct & important impact on their bottom line. To support that objective and better serve our client, PriValEdge has developed leading edge approaches & tools linked & integrated through the Pricing Excellence Framework
The Pricing Excellence provides a powerful approach to evaluating & improving the Pricing & Value Performance of companies.
It distinguishes 5 levels of ‘V&P Excellence’ for companies
- At level1, which is the situation for almost a third of companies surveyed, the situation is pretty much ‘out of control’, there is know systematic or structured approach to value measurement or pricing & lack of control in D&R results in important unexplained differences in what customers pay for the same offer. These companies price on a cost plus basis and each new product launch & pricing decision depends heavily on the quality of the intuition of the product managers
- Companies that operate at level 2 have started to put their ‘house in order’. They have price list and they do control prices applied to clients through discounts and rebates systems. But with little vision on the Value of their offer, these companies are also limited to pricing based on Costs & competitors and capture only a part of the Value that they have ‘intuitively created’. Another third of companies surveyed currently operate at this level.
- Level 3 of performance on the Pricing Excellence Pyramid represents a chasm, as companies operating at that level start to measure value & use that knowledge to guide the pricing of their products & services & capture a larger share of the val-ue created.
- Performing at level 4 represents yet another leap forward as Value Management & capture become central to the competitive advantage of the company which
- Increasingly relies on ‘Value Based Design’ to develop new targeted offers
- Optimizes pricing of its key products & services based on measured elasticities & Segmented Value models. Only the +/-10% best performers currently operate at level 4 for a significant part of their offer
- Finally level 5 represent Pricing Excellence and the very few companies that can optimize Value & pricing across SBUs for detailed Customer targets.
The Pricing Excellence Pyramid also illustrates the ‘Journey to Pricing Excellence’ on which companies must embark if they are to Make Pricing & Value a key contributor to the bottom line and to competitive advantage.
Indeed, it is very difficult to ‘jump levels’…. Companies which have not put in place the controls & discipline of Pricing (associated with level 2) will find it impossible to price based on Value (level3) as they do not measure & control how much the final customer is paying for their offer….. And to be able to optimize Prices or design new products based on Value, companies must have measured value and price response functions for a good while.
Each level of Pricing Excellence represents different challenges, requires specific strategy, processes, organization, culture…
It is indeed ‘a journey’ and will take several years. To successfully embark on that trip, companies must realize that it is about changing the way the company work to develop an important and lasting source of competitive advantage.
There are no shortcuts.
It is often the weakest link that determines the overall performance.
But with each step forward will come bottom line improvement.