PRICING FAQs


Why is pricing management important to a business?

Pricing is the most powerful marketing lever that can be used to drive earnings growth in a business. On a daily basis marketing and sales must set prices to customers. These price need to reflect the value delivered to the customer to ensure that the company gets an adequate return on assets employed


What are the consequences of not having an effective pricing structure?

Unstructured pricing management and decision making leads to inconsistencies in the valuation of goods and services. This is quickly picked up by customers who subsequently negotiate down prices. The end result is margin contraction, channel conflict and missed sales as short term, tactical and cost-plus pricing approaches to selling fail to meet the market

How does maximising price impact the EBIT line of the Profit & Loss statement?

Most companies have an Earnings Before Interest and Tax ratio of 8-15%. A 1% improvement in price can deliver a 7-13% improvement in earnings which equates to $1million in additional earnings for every $100m in sales revenue


How do I know if there is an issue with my company's pricing management?

It is hard to know that pricing is wrong simply by looking at the prices themselves. By taking a 'barometer" approach, you know there is something wrong with pricing if your business has:

- shrinking margins
- channel conflict
- loss of market share
- severe excess in production capacity
- general noise in the form of emails
- customer aggravation
- perception of a bureaucracy around pricing decisions