Why Manage Price?

One of the most critical drivers of maximizing profit is setting the right price and properly executing it. The payoff is significant. Yet pricing remains one of the unexplored and untapped processes to managing profit in today's corporations.

Price is a powerful, relatively low-cost lever that, when used effectively, can:

• Shape demand for products and services
• Increase volume for minimal margin loss
• Increase profitability for given volume goals

The chart below shows the results of a study of Fortune 1000 companies to indicate the power of price compared to three other levers in their ability to improve profitability.

However price is also used by some as a blunt weapon to force sudden, short-term changes in customer behavior. In these situations knowing if, when and how to react is critical to performance and brand image.

Prices are also becoming more volatile as a consequence of increasing cost volatility, the ease with which customers can compare prices across multiple suppliers and the establishment of new forms of competition such as food, DIY and large discount retailers.

And yet current pricing approaches are simplified and unscientific, like cost-plus pricing, or reactive, like competitive pricing. The result is volume or margin leakage, whereby companies are leaving money on the table without realizing it.

Copyright © Knowledge Support Systems Limited 2008. All rights reserved. Corporate Information|Privacy Policy|Terms of Use|Careers|Press|Contact Us|Site Map