Pricing Terminology

The world of strategic pricing management has a vocabulary of its own. Here are definition of some of the more common terms and phrases that are used on this site and among price consultants worldwide.

Competitive Match Pricing Methodology

Utilizing competitive prices to gauge the setting and adjustment of prices. Prices may be higher, lower or the same as competitors. Fails to consider costs or perceived value but useful when combined with cost-plus and value based methodologies.

Cost-Plus Pricing

A common pricing approach that utilizes cost with an applied margin factor to derive at a price. A sure fire way to guarantee margins but frequently leaves money on the table. Useful in setting pricing floors.

Custom Value

Value that is created as a result of customized product features or services for specific customers or market segments. Custom value typically offers premium price opportunities to capture incremental pricing revenue.

Discount Containment

Correcting and controlling the discounts on products and services in order to improve profit margins.

Economic Value

The economic sum of all value perceived by a customer or market segment. Provides a platform to calculate prices in B2B environments.

Expert Judgment

Strategic pricing management expertise applied to price decisions.

Incremental Pricing Revenue

Additional revenue as a result of price improvement.

Incumbent Value

Value perceived by the customer based on the existing relationship with the supplying firm. When measured accurately, can be converted into incremental pricing revenue.

Non-Linear Pricing

Discount pricing schedules.

Pocket Price

The final price after all on-invoice and off-invoice discounts, rebates, give backs, incentives, etc.

Pocket Price Waterfall

The graphical display of all discounts and other give-backs that negatively affect price with the end result showing the net or pocket price.

Price Band Analysis

The graphical distribution of net prices by customers. Indicates the number of customers paying a specific price and the consistency of pricing across all customers.

Price Optimization

The price that delivers the maximum profit.

Price Signaling

Legally messaging price intentions to an industry.

Price Threshold

The maximum price a customer is willing to pay.

Price Value Mapping

A graphical display of the competitive position of a product according to perceived price versus perceived benefits.

Pricing Consultants

Price Point Partners

Pricing Segmentation

Dividing business transactions into common characteristics for the purpose of optimizing price.

Release Price

The price of a new product of service at the time of launch .

Strategic Value

Value that is created as a direct result of a firm’s competitive strategy.

Transactional Pricing

The most granular form of pricing that manages prices on a transaction-by-transaction basis. Requires significant data derived from individual transactions but can make large contributions to margin improvement.

Value Based Pricing

Setting prices according to the perceived value of the customer. In order to perform value based pricing properly, data and information supporting the perception of value by the customer is required.

Value Perception

The value that customers place on a purchased product of service. Requires market research to identify.