Do you know how pricing decisions are impacting your profit margins? If you are like most wholesale distributors and manufacturers you probably don’t. Measuring profit margins only goes so far but stops well short of actually measuring price performance. The objective is to isolate price and measure how prices have changed over a time period and contributed or detracted from profit margins.
Being able to focus just on price begins to create a culture in strategic pricing management. After all, what gets measured gets managed. So, being able to isolate and measure price performance gets management to think about how to positively affect prices. Reduced discounting, improve product mix, higher margin products, customers with low price sensitivity and a host of other targets will surface even with minimal analysis and discussion.
And, effective price measurement will identify the weak spots where better pricing decisions are not being supported. Think of sales reps that are consistently underpricing or discounting. Or, high value/low volume products that are underpriced. These areas may be ripe for price improvement will little risk.
Measuring price performance and giving pricing more visibility in the organization is a great first step towards managing pricing strategically. You might be surprised at what you find.