Figure 9-1: Marketing Alignment Map
Are you leaving profits on the table because your price is too low or too high? Are you sure?
Pricing is one of the aspects of the marketing function that often receives heavy input from finance, operations or other areas of the company. To state the obvious, prices have a very direct connection with revenue, operating budgets, cash flows and profitability. Yet, many non-marketing managers have only a casual understanding of the complexities of pricing theory.
If you have responsibility or influence over pricing decisions, you should have a solid understanding of this marketing discipline. After all, there is an optimal price point for your product or service, and identifying it may be more complex than it seems at first. If your price is higher or lower than that optimal level, particularly if it is there for a sustained period, you could be leaving significant profits on the table.
Of the traditional four ‘P’s of marketing, pricing has the most immediate impact on a company’s bottom line. A change of even a modest amount, when multiplied across all of a company’s sales, can make a dramatic impact. This is quite evident in the most basic financial equation:
(Price × Units Sold = Revenue) – Expenses = Profit
If price increases by $1, revenue increases ...