Pricing and Profitability Management: A Practical Guide for Business Leaders

Pricing: The Critical Lever for Raising Performance

Why make pricing improvement a focus for an organization? The answer is simple: the benefits are enormous. A study has shown that 90 percent of pricing investment meets or exceeds return on investment (ROI) expectations.¹ Put another way, for any dollar invested in performance improvement, the greatest return comes when it is invested in pricing.

Figure 1.1 reflects one version of an often-replicated analysis.² All versions lead to the same conclusion: pricing is the most powerful lever available to raise performance. Despite this, the evolution of pricing management has, until recently, been slow. Although it has long been recognized as one of the traditional four Ps of marketing, systemic and structural challenges prevented pricing management from achieving the same level of sophistication or having the same capacity to improve performance as it has now. In its early days, practitioners focused on revenue/yield management and operated almost exclusively in the airline and hospitality industries. But recent developments have led companies to appreciate the breadth and critical importance of the discipline. We discuss three of these developments briefly in the following.

Figure 1.1 Profit Improvement Initiatives and ROI

The Search for Improved Data Management Solutions

The widespread adoption of enterprise resource planning (ERP), ...