Reducing operating expenses, increasing sales volumes, and reducing cost of goods sold all deliver bottom line profit. However, no element of a manufacturer’s business mix can deliver more impact to your bottom line than strategic pricing.
Pricing is the essential discipline of converting customer value into shareholder value. It has a disproportionate impact on profitability – a 2% price variation results in $2 million per year per $100 million in revenue – but it is one of the hardest areas to master.
Manufacturers struggle to maximize price performance for many reasons:
Complexity of product and customer bases
- Hundreds or thousands of SKUs
- Multiple segments
- Hundreds or thousands of customers
- Direct vs. Distribution
- Weak understanding of distributor economics
- Multiple pricing tiers and methods
Complexity of systems and technology
- Various systems issues and data weakness
- Difficult to measure performance, evaluate performance
- Weak competitive pricing data
- Lost price and profit opportunities
Organizational fragmentation of pricing responsibility
- Product Managers vs. Sales Force vs. Controller
- Lack of Training, standards
- Cost-Plus mentality engrained
- Unstructured discounting rampant
- Cultural propensity to please the customer at any price above minimum margins
- Poor upstream analysis and cultural baggage leads to chaos in transactional pricing environment
- Flat price increases to outpace cost increases or meet financial goals, sacrificing market-based analyses
- Not enough time to properly analyze pricing: start in September, send prices to publish by November 1 for January 1 Release
Strategic Pricing addresses all of these issues.
Massive investments by manufacturers and their distributors create value for customers. Strategic Pricing Management maximizes the return on those investments, while recognizing competitive realities in the marketplace and the benefits flow through directly to the bottom line.
Manufacturers that have an optimized, enforceable, measurable strategic pricing program in place with the proper tools and training achieve significant increases in profits.
Strategic pricing is a big opportunity – generally 2+% of revenue. As pricing gains flow through directly to the bottom line, they can improve a company’s net profitability by 20% or more.
The drivers of the opportunity are clear:
- Reigning in Sales rep discounting practices
- Replacing the Cost-plus mentality
- Managing complexity of product lines, customer base, revenue types
To be effective, a pricing program needs to be data-driven and able to translate strategy into actionable plans.
Pricing is a specialized discipline where expertise has huge payoff in impact and speed of execution.
Join over 200 Manufacturers that have partnered with SPA on the road to achieving strategic pricing excellence today.
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