While reportedly the single biggest lever for driving profitability and economic value for most companies, pricing remains a distant fourth in the race for attention amongst the 4 Ps in marketing and business strategy. Unlike the sexiness of the Promotion P, with its focus on attention grabbing advertising and content marketing; or the strategic challenge of identifying the right channel and distributor alliances within your Place P; or the satisfaction that comes from driving innovation and differentiation with new and improved products and technology in your Product P; the Pricing P — with all of its power to transform a company’s bottom line — remains virtually unattended on a daily basis for most companies, settling instead for limited time and attention during annual planning reviews or event-based pricing moves.
I believe many companies can relate to a recent quote attributed to Jeff Immelt, Chairman and CEO of General Electric, when he said:
“Not long ago, a guy here (at GE) did an analysis of our pricing in appliances and found out that about $5 billion of it is discretionary. Given all the decisions that sales reps can make on their own, that’s how much is in play. We would never allow something like that on the cost side. When it comes to the prices we pay (our costs), we study them, we map them, we work on them. But with the prices we charge, we’re too sloppy.”
Sloppy, undisciplined, inconsistent, uncontrolled — does this approach to pricing sound familiar?
If so, you are not alone, and this is perhaps a paradigm shift that many organizations need to consider as they look at the balance of time, effort, and money spent on improving their pricing practices versus costs. Is the army of six sigma black belts, cost accountants and economic evaluators focused on your costs, far exceeding the number of corporate pricing experts and specialists? While cost management is an important aspect of managing a company’s profitability and value, pricing, as stated earlier, is the highest leverage item a company has for impacting profitability.
Said another way by Warren Buffett:
“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”
So why is it that pricing remains very analogous to the story book character, Cinderella, whose beauty and true heart were unrecognized when hidden and overshadowed by her evil stepmother and stepsisters, but who unexpectedly achieves recognition and acclaim after a long period of obscurity and neglect after putting on the glass slipper? It’s not that the Product, Place, and Promotion P’s are by any means evil, they are absolutely critical in your strategy. However, when focused on at the expense of pricing, they can lead you down a very challenging path. But in the end, who ultimately ends up with the handsome prince? It’s Cinderella of course.
There are great resources available to help you in this quest for improved price and profitability. The time is now to take your pricing to the next level. Because in the end, what is more elegant than growing profits and sustaining growth?