Price management: Can you really afford to leave the big bucks on the table?

Simon — Kucher & Partners’ Global Pricing Study 2016 results revealed room for improvement in many companies’ approach towards pricing. As much as 87% of the respondents indicated a need for more investments in a better and more professional approach towards pricing.

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Companies investing in professional pricing approaches have 27% higher profits

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The consequence of leaving pricing to chance, is that:

• Intended price rises are not sufficiently enforced or fail
• “Accidental” price wars throughout industries erase
• Innovations miss their financial targets
• Revenue potentials are not fully exploited
• Etc.

This becomes obvious looking at the 13% of companies investing in a professional pricing approach and hence achieving 27% higher profits on average, than those who don’t.

Top Management should ask themselves: “What is the professionalism of our company’s pricing?” To pulse check the expected answers on this question, Simon — Kucher & Partners has developed and applied a thorough evaluation process through its Pricing Score Card. It is benchmarking with peers and revealing the relevant areas for improvement. A necessary first step in a pricing excellence journey to enhance clients’ pricing approach. To do an ad-hoc diagnose the condensed and simplified Pricing Excellence Checklist enables already a quick diagnosis.

If you answer three or more questions with yes, then the bad news can be good news, because there is a high likelihood for significant revenue potential.

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People involved in pricing are usually not aware of what they lack in pricing excellence

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What we observe when starting a Pricing Excellence Program is, that typically some common misperceptions exist. Those relate often to the:

Pricing Process: People say they have a pricing process…

…but what they truly have is a pricing governance process focusing on legal sign off not on development of pricing decisions.

Pricing Organization: Pricing functions and roles exist in the organization…

…but role, integration into the organization and decision power are usually not in line with importance of pricing.

Pricing Methodologies & Tools: Many methodologies and tools are used within the company…

…but the knowledge and tools differ significantly across individuals among teams, lacking standardization and a consistent and appropriate application.

Simon — Kucher & Partners’ Pricing Excellence Program focusses on improving the approach and hence a company’s capabilities in pricing to make more money. Six main areas are covered during the roll-out of the program: Raise Pricing Awareness, Derive Pricing Strategy, Establish Pricing Organization & Processes, Provide Pricing Methodologies & Tools, Do Piloting and support Implementation & Execution. Those elements are detailed and tailored for each client, using proven methodologies and tools as well as developing client specific strategic pricing approaches to enable high quality pricing decisions. One key output is the Simon — Kucher & Partners Pricing Guide, a cloud based solution, bringing all the bits and pieces together and providing guidance for in daily pricing decisions. It supports decision makers, but it does not replace them. That message is key to ensure acceptance on all levels of the corporate hierarchy to improve pricing. It hosts also all tools and central documents required to prepare pricing decisions of highest standards.

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Pricing Excellence Program increases profitability of every pricing decisions 3–5%

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Executing the Pricing Excellence Program increases pricing capabilities significantly and enables a professional pricing approach. Piloting the concept usually pays of for the costs of the program itself. On average the profitability of each individual pricing measure increases between 3–5% during the first year after the program. Long term effects through more effective knowledge sharing and standardized analysis lead to even higher improvements.

A professional approach towards pricing requires investment (time and money) and a change in mindset. The Pricing Excellence Program is a proven concept, which enabled many clients of Simon — Kucher & Partners to establish it successfully and started a journey towards Pricing Excellence yielding in higher revenues or overall better target achievement.

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About the authors:

Dr. Ekkehard Stadie is a senior partner with Simon — Kucher & Partners based in Cologne. He is heading the Simon — Kucher & Partners’ Telecommunications and IT competence center and has conducted several Pricing Excellence Programs across the globe. Ekkehard.Stadie@Simon-Kucher.com

Dr. Kajetan Zwirglmaier is a Director with Simon — Kucher & Partners based in Munich. He is a member of the Simon — Kucher & Partners’ Telecommunications and IT competence center and has focused on developing the Pricing Excellence Program and implemented it with several clients across the globe. Kajetan.Zwirglmaier@Simon-Kucher.com