Getting price right is one of the most effective profit levers in business. Are you dedicating enough attention to maximising this opportunity?
Getting price right is one of the most effective profit levers in business and can deliver significantly higher returns than improvements in volume or costs of the same magnitude. Despite this, pricing and revenue management (RM) is still an underdeveloped function in many businesses. Why? Because pricing can be complex and is a double-edged sword. Getting it wrong is the fastest way to destroy profits and revenue.
We have unique expertise to help you boost growth by designing smart pricing solutions. To ensure that pricing upsides do not remain ‘on paper’, our proven approach supports every step of price optimisation, from initial opportunity assessment to solution design and implementation.
“The single most important decision in evaluating a business is pricing power… If you have to have a prayer session before raising the price by 10 percent, then you've got a terrible business.”
We work with our clients on a wide range of topics, from every aspect of the pricing function.
If you are a new player trying to win market share, you will probably undercut existing competitors by using lower price point to encourage uptake of your product. If you are an established premium player, your strategy may be to “skim” and go for the premium section of the market, instead of fighting for volume. And if you have multiple products each with a different market position, you will have to manage multiple strategies at the same time and communicate them clearly to your sales force to make sure they are executed properly.
A good reality check is to ask your sales people what they think the pricing strategy is for different products they sell. If most of them have no idea or you get very inconsistent answers, you’ve got some work to do. We help our clients agree and formulate price strategy and make sure the message filters all the way through the organisation. This is a necessary foundation for all further work, especially price setting.
An obvious place to start is to understand which features of your products deliver high(er) value to your customers and how much they are willing to pay for them. Then, based on this customer value, define your price list to reflect the right price differential between your most basic and your most premium products. This is rarely aligned to the differences in production costs, which could either be minimal, or very significant.
Once you’ve designed your price list, you then have to decide how to manage exceptions - who in the organisation can (and who can’t) discount and sign-off prices that are below prescribed levels and in which circumstances (deals of certain size, specific customer behaviour which should be rewarded, sector circumstances etc.).
Your teams need to know what is changing and why. If you don’t bring your sales team on board, they will not have the confidence to deliver and justify the message to the clients. They will need training, new brochures and sales support material and tools, including answers to anticipated customer questions.
Also, you get what you pay your people to do – there’s no point in incentivising your sales team on volume, while asking them to increase price and sacrifice volume in the process! If the primary goal is profit, that should be reflected in the sales incentive plan. It is surprising how many companies don’t align incentives to the changes in business strategy, only to then ponder why implementation has not been successful.
You can’t manage what you can’t measure. How will you know if you’re improving on price if you don’t have a single pricing KPI in your management report? Observing price development over time, price variance across customer base and level of exceptions to defined rules is crucial for understanding commercial direction that your company is taking.
If you are a mid-sized business and you have more than a few products in your portfolio, you probably need someone to look at pricing on a regular basis and not as an addition to their day job. Pricing or Revenue Management teams vary in size. As rule of thumb, you should have one FTE for every £50m of sales. They will pay for themselves many times over, if they know what they’re doing.
In the M&A environment (due diligence), we have experience in supporting clients on both ‘buy’ and ‘sell’ side, providing detailed assessments on pricing opportunities for target companies. We use a range of different methods and sources of insight, adapting our approach to the type of data available and the management team's needs.
Outside the transaction environment, we work on pricing value creation with both corporates and private equity portfolio companies. Our experience covers all sectors, from software and technology to consumer goods, industrials, business services and healthcare.
Experience shows that if you dedicate as much time to pricing strategy as you do to analysing your cost base, you can deliver substantial rewards that go straight to your bottom line.
For more information, please contact one of our experts to schedule a discussion and hear how we can help your business.
© 2019 - Fri Sep 20 14:06:22 UTC 2019 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.