While profitability initiatives like cost cutting and sales increases are widely used by C-suite leaders, price optimization—despite its proven impact on profitability—is a far less well understood strategy. For executives at B2B companies, pricing can have an enormous impact on the bottom line, which is why C-suite execs need to know about the potential price management offers.
We asked leading executives at B2B companies what questions they had about price optimization. Here’s what they wanted to know:
When it comes to pricing, where should I focus my attention first?
One of the quickest paths to increased profitability is to turn your attention to the pricing decisions you already make every day. As a manufacturing company, you’re likely offering a variety of discounts to different customers, factoring in freight costs, and making choices about return policies. Those pricing decisions are all examples of low-hanging fruit that, once tackled, can help you achieve significant profit gains.
To start, work on uncovering problem areas and identifying opportunities to improve aspects of your pricing structure. There are a wide variety of options, but traditional areas where quick gains are possible include improvements to pricing policies, processes, governance, and systems. Small adjustments produce a big impact, delivering results directly to your bottom line.
How do I rapidly increase profit with minimal disruption?
Improvements to pricing are among the few changes a company can make that won’t interfere with its leadership, workforce or objectives, and they can be implemented with great speed for rapid impact. And when you implement pricing changes correctly, you don’t have to worry about losing sales volume or endangering customer loyalty.
CONSIDER THIS: A 1 percent reduction in cost impacts a company’s bottom line by an estimated 8.7 percent, but can cause significant disruption to structural integrity.
By contrast, a 1 percent improvement in pricing can boost the bottom line by more than 12 percent (3 percent more than cost reduction) and holds little to no risk of operational disruption.
Does My Company Have the Right Pricing Foundation?
Most companies lack built-in structural accountability for price enforcement. For example, price targets may be set by management, while sales adjusts them and finance measures the results. Often, no one in a management role owns a company’s pricing strategy. Effective price management isn’t a one-time project; it’s an ongoing commitment that requires process, technology, and clear ownership—such as a dedicated pricing manager or leadership team member— to drive and sustain pricing excellence.
We wrote the book (well, the eBook) on what execs at manufacturing and distribution companies need to know about pricing. Get a copy of our free, five page report: “Executive Insight: The Path to Risk-Free Profitability” here.