Companies that treat pricing as a strategic capability should outperform their peers.
Traditionally, pricing has been viewed as a tactical lever to drive volume, rather than a board imperative. But companies that treat pricing as a strategic capability should outperform their peers on sales and profit growth.
KPMG research indicates that companies are confident that more effective pricing can generate 5 percent – 10 percent profit improvement.
This means rethinking the relationship between price and volume, and not just lowering prices because everyone else is doing so. More importantly, it means basing prices not on cost-plus, or on peers’ activity, but on the perceived value the product or service creates for customers.
We believe the next big pricing change will involve sophisticated analytics. Dynamic pricing is already here and will continue to flourish, with prices for some products and services changing based on the time of day, month or year, weather, and so on.
Companies need to understand how price changes affect demand and profitability, and where and how value is created. Those that fail to embrace strategic pricing could see margins fall to an extent that threatens their very survival.