A key question on the mind of every management team (and of course the shareholders) is:
How can we increase profitability?
A major emphasis is often placed on cost- however what about pricing (Revenue)?
Incremental profitability can be increased through a deliberate pricing process and program to target:
1) Customers who are very sensitive to price and do not require all the product/service attributes a company offers
2) Customers who require a specific product and services which generate significant added value to their end offering
3) Customers who require unique lead times
Almost all companies recognize at some level the different needs of their customers- what is often absent is an understanding of the value the customer generates with your products and services and how you can partner with them to increase their competitive positioning and thus earn a price premium.
Furthermore, in a number of companies pricing decisions- while being made hundreds and thousands of times a day- are not made visible and are not linked to the value generated for the customer. There are a few steps that can be made to change this deficiency:
1) Make pricing a priority- and an agenda item for management to discuss openly
2) Survey in detail your customers objectively to understand what is working- and what is not working for them
3) Verify your true competitive advantage as viewed through the eyes of the customer relative to the premium they are prepared to pay for your products and services
4) Conduct a trial pricing program as opposed to a “one size fits all” pricing solution
5) Work cross-functionally to understand where value is being generated not only for your customer but also internally within your business units
6) Roll out a new pricing program and adjust together with your strategy
A pricing program, in our experience, can increase EBITDA as much as 15% per year, when implemented in conjunction with a solid Strategy.