Pricing and Profitability Management: A Practical Guide for Business Leaders

How to Execute a Diagnostic

A comprehensive diagnostic can be broken down into four basic phases:

• Scoping and planning
• Information gathering
• Consolidation of findings
• Opportunity definition.

Information gathering is by far the most time-consuming of these phases, though the other three also have labor-intensive elements. The tactical guidance that follows can be used to help conduct a successful diagnostic, while avoiding common pitfalls.

Scoping and Planning

When determining the proper scope for the initiative, firms will, of course, focus on the business units that are showing pricing or profitability problems. Obvious choices include Marketing, Sales, and Pricing (if the latter exists as a separate unit), but management should cast as wide a net as possible to create the most accurate picture of internal capabilities. Because pricing touches every element of a firm, all relevant functions should be considered—even those that appear to have elevated, or mature, capabilities. While adding top-performing groups may require incremental effort, it can also help leverage best practices and applicable tools to benefit the change management effort. Potential candidates for inclusion include the following:

• Marketing, which often sets prices and discount structures and knows both the competitive environment and the firm's pricing role in the industry (e.g., leader or follower)
• Sales, which communicates and negotiates price directly with the customer and has its compensation significantly ...