Making Money with Pricing
Despite the extraordinary bottom-line impact that pricing has in every business, a surprising, if not shocking, number of businesses find that critical pricing policies and decisions are made by people without a thorough market and competitive understanding or general management perspective. The framework most businesses employ for making pricing decisions is usually the result of accounting practices, economic theory, and historical industry practices. In addition, few businesses have the ability and processes to analyze and control pricing at the individual transaction level. As a result, pricing actions are often reactive, unstructured, and not strategically focused. More importantly, from a short-term tactical perspective, profits suffer from multiple price "leaks" and unintended downward price pressure. We find that most businesses can achieve significant improvements in profitability by taking a pro-active and Market-Focused approach to developing and implementing pricing strategies and tactics, with typical improvements of over 2 points in margin achieved, with no sacrifice in volume or market share, in a matter of months.
The MFL Group has developed powerful and productive approaches to helping businesses capture their share of the value they deliver through proactive and Market-Focused pricing. We help businesses at three different stages in their evolution:
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Start-up businesses need to consider pricing with as much effort, focus, and discipline as their initial strategy and design of their entire Value Delivery System. The goals of pricing within the business strategy, pricing segmentation, pricing strategy and tactics, and the pricing process, all need to be developed on an integrated and Market-Focused basis. Too many businesses in their start-up stages leave pricing to the very end of their thought process, often addressed only when they receive their first order.
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Many businesses have a strong market position, a very powerful Value Proposition and are able to deliver their product or service to customers in a cost-effective and quality manner. However, they often have not focused on developing Market-Focused pricing capabilities necessary to fully capture the value they are delivering to their customers. The lost profit opportunities caused by pricing leaks, even in industry leaders, are usually surprisingly large and easily captured in a matter of months. Improving value capture through improved tactics and more powerful strategies is a sure way to increase profitability in the short-term without risking a loss in overall volume or share position.
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Unfortunately, many businesses find themselves evolving into a commodity or engineered commodity stage in their businesses. In these situations, the increase in competitive intensity generally leads to price becoming the primary basis of competition for orders and customers, as opposed to other elements of value. In many situations, this intense competition leads to either price wars or a steady downward spiral of pricing, causing only the unquestioned cost leader to have the opportunity for modest or attractive profits. Market-Focused pricing approaches, however, can often slow or at times stop and even reverse this downward price spiral, providing the opportunity for all industry participants to achieve acceptable levels of profitability and return on capital employed.
MFL has extensive experience in assisting clients in all three of these stages to develop, implement and sustain Market-Focused pricing capabilities in their organization, resulting in significant and sustained profit gains.
