Imagine yourself in the following situation: after careful analysis, detecting small opportunities, you manage to improve your prices by 1%. In the same way, a group of engineers, after weeks of work, finds an opportunity to reduce costs by 1%, and at the same time a salesperson manages to close an operation with a new client that adds 1% to the quantities sold by the company. Which of the actions has a greater impact on the results of the company? If you answered the first one, you are correct: price is the variable with the greatest impact on the company's results.
A study recently carried out by the consulting firm Mc Kinsey, one of the most prestigious in the world, allowed to demonstrate with real data, on a sample of 1,200 companies globally, that an improvement in prices has an impact on the results 3 times greater to an equivalent improvement in the quantities sold, and a 50% greater than a reduction in variable costs. In light of these results, it is truly surprising how many companies find themselves obsessed with cutting costs and gaining market share, but at the same time paying very little attention to their pricing policy. They are just neglecting the most powerful instrument to improve their results.
Pricing is a historically present decision in all types of companies, from a minimarket to a large multinational. However, the novelty of the approach called Pricing, which emerged in the United States in the late 1990s, has been to revalue its contribution to achieve greater profitability in the company, hand in hand with new concepts and tools.
But be careful, we should not get confused, when we talk about Pricing, we are not necessarily referring to raising prices, plain and simple, to all our customers. Without denying that at times this may be necessary, there are situations in which even despite the stability of prices in the market and very challenging competitive conditions, opportunities appear to make price adjustments in a much more analytical and selective way. Pricing tries to look for these “little opportunities”, which, as we have seen, can have a great impact on the results. It focuses, by way of example, on topics such as:
- Micro-analysis of transactions: The invoiced price is generally different from the actually received price, or pocket price. Various concepts such as financial, promotional discounts, for guarantees, transportation, or special payment terms are, among others, responsible for the difference. Using tools that allow you to analyze pricing micro-analytically, transaction by transaction, transaction by transaction, numerous opportunities can be detected that are often overlooked by conventional analysis. Price Segmentation: Not all of our clients are the same. Understanding this premise, and after making a careful analysis, it is possible, through various instruments,selectively adjust prices in order to capture a greater portion of the value created in each of the segments that make up the company's target market. Dynamic Prices: The demand for and supply of many products fluctuates significantly over time. Adopting a pricing approach that adjusts to these fluctuations can bring many benefits to companies, particularly those that sell services, perishable goods, subject to fashions or seasons. There are state-of-the-art software for this type of pricing policy, called Revenue Management.Adopting a pricing approach that adjusts to these fluctuations can bring many benefits to companies, particularly those that sell services, perishable goods, subject to fashions or seasons. There are state-of-the-art software for this type of pricing policy, called Revenue Management.Adopting a pricing approach that adjusts to these fluctuations can bring many benefits to companies, particularly those that sell services, perishable goods, subject to fashions or seasons. There are state-of-the-art software for this type of pricing policy, called Revenue Management.
In short, when we talk about Pricing we are talking about rethinking our pricing policy as a strategic tool to capture value and increase the profitability of the company. Companies generally focus on reducing costs, improving quality, selling more, and being more efficient. These efforts are undoubtedly fundamental, but these actions do not by themselves ensure that the company is profitable, this is precisely where Pricing intervenes, to translate the company's efforts into results. This is what the pricing challenge is all about.
