The power and impact of pricing on the bottom line cannot be denied nor ignored. There exists a large body of academic and practitioner research demonstrating the positive impact that pricing can have on firms’ gross margins and also on bottom line profits. Pricing is actually considered by lots of experts as one of the most powerful levers of profit improvement. McKinsey reported that a 1% price increase, all things remaining equal, increases operating income by 8%. Other consultants also report the impact of pricing investments in strategies and in software as shown below.
Simon-Kucher & Partners (2012): 35% Increase in EBITDA for firms with higher pricing power.
Deloitte (2012): Average operating margin increase of 3.2% for pricing initiatives after 18 to 24 months of implementation.
Deloitte (2012): Companies that are pricing leaders are 26% better at managing true profitability.
Gartner (2012): Pricing optimization software leads to average total revenue improvement of between 2 to 4% and a payback of under 2 years.
Innovation Insights (2012): By 2015, best-in-industry enterprises will increase revenue by up to 3% and profits by up to 15%, due to improvements made using price optimization technologies.
I have worked on many consulting projects related to pricing and value management. My experience shows that the positive impact can be immediate. When pricing becomes a topic of interest, there are quick wins to be captured from the get go. Leaders are able to see and understand some of the dysfunctional pricing levels emerging from data. In a matter of a few weeks, mindful and actionable pricing decisions can improve bottom line results. Reaching greater pricing power is the ultimate goal for many firms. Reaching pricing power is a journey that may take several years and require investments in pricing science and technologies. The impact of such initiatives is realized on multiple levels:
– The bottom line improvements are real. For every dollar invested, you should expect a $7 return at a minimum.
– Take control of your pricing destiny, giving you the ability to proactively manage market volatility. Control what you can control and better understand how to weather market turbulences.
– Educate your customers on the value of products and offerings, especially in firms with innovative products, and generate additional excitement in the market.
– Invest smartly in sales growth by adding resources in areas where you have greater ROI and pricing realization.
– Increase customer satisfaction with your pricing tactics. Offering the right product to the right customer at the right price has been proven to build customer loyalty.
Once again, the impact of pricing is real. It is clearly demonstrated. There are many success stories presented every year at the Professional Pricing Society annual conference. Leaders from firms of all sizes gather in one location to share best practices and to discuss pricing and profit successes. As a “Pricing Evangelist”, I am dedicated to showing the power of pricing versus other traditional profit improvement activities. When leaders have exhausted their cost cutting potential or when growth opportunities are scarce, the priority should be to find pockets of price opportunities in their existing business and to increase pricing power.
Be bold. Join the pricing revolution!
To access the On Demand webinar “The Financial Impact of Value-based Pricing” by Dr. Stephan Liozu, please click here.
About Dr. Stephan Liozu:
Dr. Stephan Liozu is a Pricing Evangelist and Thought-Leader as well as the Founder of Value Innoruption Advisors. He specializes in the design of innovative and differentiated business strategies for B2B firms, and the implementation of value-based pricing strategies. His acclaimed Customer Value Modeler (CVM®) certification program trains professionals in value modeling best practices. Stephan is co-author of Innovation in Pricing, A User’s Guide to Value Modeling, and The ROI of Pricing, as well as numerous academic papers. He holds a PhD in Management from The Weatherhead School of Management at Case Western Reserve University where he is an Adjunct Professor and a Visiting Scholar. Stephan sits on the Board of Advisors of PPS and LeveragePoint Innovations. You can access more information from Dr. Liozu by visiting www.stephanliozu.com.