Addressing pricing issues using fact-based management methodologies
Our experience in advising clients in various industries demonstrates that many organizations are ill-equipped to effectively conceive and deploy successful pricing strategies, resulting in over-reliance on efforts to cut costs or boost unit sales.
Despite its significant impact on business performance and profitability, pricing remains one the most under-utilized strategic levers in many companies' management toolkit. Our experience indicates that some of the common issues acting as roadblocks against effective pricing management include:
- Art rather than science – Dependence on personal judgment and business experience in lieu of sound, fact-based pricing management methodologies
- Cost-based and competition-oriented, rather than demand-driven – Lack of an in-depth understanding of customer behavior and price responsiveness to substantiate pricing decisions
- Monolithic rather than targeted – Failure to adjust pricing strategies to fully leverage the different needs (and valuations) presented by distinct customer segments
- Ad hoc rather than systematic – Absence of an ongoing pricing management process through which information is collected and analyzed, performance is monitored, and decisions are made
- Diffuse rather than structured – Lack of clearly defined roles, responsibilities, processes, and decision rules across key stakeholders, i.e., sales, marketing, finance, and product management
- Isolated rather than integrated – Decisions made within specific groups or business units are often misaligned with broader organizational objectives
We adopt a customer-driven, demand-based approach to help companies develop and implement successful pricing initiatives that are not only strategically aligned with broader corporate objectives but also rooted in sound organizational support. As a result, we are well-positioned to work with clients in various industries to address multiple strategic as well as tactical pricing issues, including:
- Which new product features will provide the best returns on R&D investments? How much would different customer segments pay for different or additional features?
- How can we better segment the market for pricing to reflect differences in value to different types of customers?
- Which service characteristics are worth investing in? How much more would customers pay for new services or enhanced service levels?
- How to price “new-to-the-world” products?
- How to best manage prices across different customer segments or across adjacent product categories?
- How could changes in prices of specific products affect the rest of my portfolio? What specific pricing moves would maximize the profitability of my entire portfolio?
- How should we react to specific pricing moves from key competitors?
- How differently should prices be managed along the product lifecycle?
- Across product lines, how do we make promotional pricing work more effectively? Should an everyday-low-price (EDLP) approach be adopted instead?
- How can I realign my organization to enhance our pricing management capabilities?