Pricing and Profitability Management

Consulting offerings

If your organization is like most, pricing is a set of disparate activities carried out in different parts of the business. And in many businesses, each function – Finance, Marketing, Sales and Operations – works with a different set of data to make pricing decisions. Different functions also often define goals and reward performance using different metrics, which can be in conflict with each other.

Effective pricing management can help you increase profitability by improving the way you analyze, set and deliver prices, including enforcing pricing policies. And the benefits can be realized in good times and bad. The tools and discipline of pricing and profitability management can help a business address the immediate issues presented during economic instability, as well as help position the company for long-term profitable growth. Learn more about Pricing and Profitability Management.

One piece at a time

When companies do take on pricing, it can be hard to know where to start. The job of setting the right price is only the most visible part of the overall strategy, which can engage nearly every part of the business. The more effective course is to take on the challenge of pricing in bite-size portions that set clear, aggressive goals within tight timelines. Important steps - like segmentation, improving price execution processes, or understanding profitability at the customer, product or channel level - can be executed within 100 days. And, as an interconnected whole, they can add up to significant long-term changes.

No matter where you start, gaining transaction-level insights –that is, knowing exactly what is happening in each and every sales transaction– is the key to understanding exactly where and how a company’s pricing and profitability can be improved. Armed with these insights, you can align spending on individual clients with the value they create. For example, a discount is an investment in your customer. Are you getting the right level of return on that investment? Do you know which customers consume the most technical support? All customers are not created equally. Transaction-level insights can help you understand the differences more clearly – and change your pricing accordingly.

How we can help

Deloitte is routinely ranked as the top pricing practice in the world by leading analysts.We offer an end-to-end approach to improving the entire spectrum of pricing capabilities, not just bits and pieces along the way. Strategy. Price optimization. Process improvement. Organization design. Transaction analysis. Technology selection and implementation. Change management. We put it all to work together, building on transaction-level insights to help some of the world’s most successful companies become even more competitive through improvements in pricing strategies, processes and capabilities. And when it’s time to put technology to work in support of your plans, we have close alliances with the top solution vendors to help you get more value, faster.

Here are some of the ways we can help:

• Understand your profit drivers through detailed analytics - including transactional analysis, advanced segmentation and price optimization
• Maximize profitability with value-driven pricing strategy and optimization, set in motion by demonstrated implementation capabilities
• Sustain profitability by establishing an infrastructure that makes it easy for you to take the reins, accounting for the people, processes and technology aspects of the strategy

Bottom-line benefits

• Add as much as three percent of addressable revenue to the bottom line in the first six to 12 months
  Improve predictability of profit and volume
• Deliver better visibility to pricing and margin information to improve decision making
• Reduce margin leakage by improving measurement and management of sales activities
• Increase control of transaction profitability through active management of pricing execution
• Create a sustainable approaches that can deliver results for years to come

Six ways to get more value now

Deloitte has helped many leading companies improve their approach to pricing. Here are some of the things we've learned along the way:

1. Crawl, walk, then run. Addressing the full range of pricing activities can delay results and could lead to poor implementation decisions. Better to focus on individual processes first, with an eye to how each will play into the big picture.
2. Get the facts. Too often, companies operate with so-called “tribal knowledge” that isn’t rooted in facts, or they can’t agree on a shared perspective on pricing performance and profitability. There’s one surefire way to overcome this obstacle: get the facts. With one source of truth, the organization will be better prepared to make smarter decisions.
3. Start with value, not technology. Pricing isn’t about implementing or even improving a process. It’s about creating value – and that’s where you need to focus. Instead, some begin their efforts to improving pricing by purchasing commercial software or redesigning processes. As a result, the project eventually shifts away from generating value. Don’t fall into that trap. Keep margin and price improvements in your crosshairs, and everything else will eventually fall into place.
4. Plan for the unexpected. Businesses change. Markets change. The competition changes. Make sure your pricing program is flexible enough to meet unexpected shifts in priorities and underlying business realities.
5. Force go/no-go decision points. View the pricing initiative as a series of mini-milestones, at which executive leadership is required to make the call on the next steps. Keeping the executive team involved frequently helps create a sustained focus on value, and limits the downside of the business case.
6. Examine your prices at the transaction level. Each line item on each invoice either contributes to or subtracts from your operating profit. Your pricing strategy must be built on insights at this level to be truly effective. Advanced data mining tools can help.

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