Pricing and Profitability Management: A Practical Guide for Business Leaders

The Case for a Diagnostic

Today's marketplace is flooded with advice on how an organization can improve its pricing capabilities: “fix processes”; “manage by pocket margin”; “buy pricing software”; “align sales force incentives to margin.” Despite the plentiful generic recommendations, most organizations see their efforts flounder because they didn't start from the right point or didn't prioritize their efforts according to their own situation. To begin with, management should ask itself some basic questions:

• Where could our organization improve the most?
• Which capabilities are of the greatest importance?
• What is the best sequence for our improvement efforts?
• What can we do for ourselves, and with what do we need help?
• Where do we have a competitive advantage, and how can we sustain it?

A diagnostic can help provide the answers to these questions, while identifying and prioritizing improvement opportunities. Companies that skip this step and attempt to proceed in an unstructured manner will find pricing improvement a costly, and even destructive, exercise. For example, many companies limit their improvement efforts to simply standardizing their existing pricing and profitability management processes. But by doing this, all they typically accomplish is to reinforce and leverage their current, flawed approach—an exercise of questionable value. Though it is highly unlikely that any company using substandard processes could achieve a best-in-class pricing strategy (with top-notch ...