Hidden Treasures – Increasing Profits Through Better Pricing Strategies

Simply swapping market share at ever-decreasing prices is a mugs’ game. But there are ways of improving profitability through a more sophisticated and customer orientated approach say consultants Simon, Kucher & Partners.
On average, the FTSE100 companies are giving away between one and two percentage points in Return on Sales by not fully optimising their pricing. This increase in ROS, which often equates to a profit increase of 15% to 20% or more, is what, in our experience, can be achieved by improving the price management in an organisation.
Most British banks were able to announce all time profit records for 2006. However, taking a closer look at these numbers reveals that most of these earnings come from investment banking and in some cases foreign activities. Domestic retail banking contributes only a small part of the profit of the more diversified groups. In order to achieve higher profitability in that part of the business the strategy for most banks over the last few years has been to cut cost. This certainly is important but the potential to increase profit and thus shareholder value is significantly higher today in the field of pricing as many cost cutting opportunities have already been exhausted.
Pricing Processes – The Key to Success
Simply increasing prices will not work. Prices need to be increased or price structures changed selectively in those areas where customers will react less sensibly and prices of products that are in the customers’ focus
might need to be reduced. Banks typically have several hundred product components for which prices have to be optimised. Such a complex system can only be managed successfully if done through a systematic pricing process, which typically covers five phases:
1. A check of the status quo to understand the current situation, its positive sides and deficits
2. The actual optimisation of price structure and level differentiated by segment, including sophisticated pricing structures such as bundling
3. Based on this, the right rules and guidelines need to be put into place to allow insights to be drawn from the right analyses and to help the pricing decision makers decide what must be done to set prices,
differentiate prices, etc.
4. Implementation is the acid test every pricing process will have to face. The right organisational structure, IT support, incentives, communication strategy (internal and external), discount strategy (in particular for B2B), and training needs to be rolled out
5. Controlling and monitoring to ensure that implementation goes as planned and to identify any shortcomings early enough to correct them
For the full article download the above PDF.