Once started, pricing optimization is an ongoing process that can deliver continuous value to the organization. As previously mentioned, companies should embark on pricing optimization on a gradual basis rather than a disruptive approach to change the entire organization's pricing strategy all at once. Companies should sequentially address the pricing issues that have the greatest business impact. Keys to successful pricing optimization efforts over the long-haul culminate in that:
- They are designed to provide a logical path for additional steps to address the complete pricing continuum
- Returns from efficiency and new margin opportunities resulting from the initial steps can help fund and guide future initiatives
- Paths are laid out at the beginning to encourage proactive planning for additional progress of the pricing initiative
Pricing as a Lever in the Supply Chain
Price can act as a strategic lever in the supply chain and can be used to influence the demand curve to achieve business objectives while accounting for real-time variables. A company can increase the price of a product to a certain point, and that price change can then influence behavior on the demand side.
Using price as a lever can help organizations overcome situations they face everyday and help them reach business performance level goals for their overall product portfolio. For example, consider a company that has excess inventory of a given product. That company wants to move more of that product and does so by announcing a special discount or promotion for a number of weeks looking forward. Or, consider that same company that has low inventory of a product and needs to transfer demand to another product. Using price as a lever, they can increase the price of the low inventory product to shift buying behavior to another similar product.
Pricing wisdom can influence and impact the supply chain while not only moving the right amount of product, but do so at the price that is going to maximize the result on a company's bottom line.
To conclude, pricing reform can drive significant profitability and revenue improvement across the organization and should not be embarked upon reactively when there is a financial crunch threatening the company. Taking a proactive, continuous approach to pricing optimization will improve financial performance, put more thoughtful structure around pricing plans and drive greater customer and supplier loyalty by providing clearer understanding throughout the value chain.
About the Author: President and CEO Jim Clayton brings extensive experience in building new companies to the leadership team at the Metreo (www.metreo.com). As a principal with Symphony Technology Group, a venture fund affiliated with Bessemer Venture Partners and Accel Partners, he has lent his expertise to numerous portfolio companies, including Qiva, Trigo Technologies, and ePIT Systems. Clayton was an engagement manager with McKinsey & Company prior to his time at Symphony and he also served as a member of its Corporate Finance and Strategy Practice. At McKinsey, he worked with clients in a variety of industries, including transportation, energy, technology and finance. Clayton attended the University of Texas where he earned a BA degree in business administration and a law degree.