Incremental Investments in Pricing Yield Big Returns| Strategic Pricing Solutions
All companies want to improve their profitability and deliver more value to their shareholders, but the best ways to do that are often debated. Pricing is the most powerful lever available to companies striving to improve profitability, but how to effectively use that lever may be unclear. Over the years we have talked with many firms who have read about others extolling the virtues of using revenue management, revenue and profit optimization, big data analytics, dynamic pricing, and price optimization. However, those firms did not understand what the terms really meant, and they did not want to spend millions of dollars betting on something confusing. Our advice – start small and build your capabilities and returns from pricing incrementally.
We have no doubt that pricing is the best profit-improvement weapon available, and we regularly demonstrate the reason for that to clients and potential clients. But that is a little like demonstrating that investments in equities are required to build long-term wealth. You still have to know how to do it, and the road is littered with people and companies who swung for the fences with poorly understood investments that were supposed to yield big profits but failed. To improve profits through better pricing, we recommend companies start with smaller investments that identify where prices can be improved without sacrificing volume, and build organizational confidence in a more strategic pricing approach.
For simplicity, we think of four levels of investment in pricing improvement:
- Baby steps
- Low-cost optimization
- Enterprise tools
- Enhanced enterprise tools
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