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|The following thought-leadership article was publised in Hydrocarbon Asia : July / Aug 2005|
|DELIVERING QUANTUM LEAP IN PROFIT IMPROVEMENT THROUGH PRICING EXELLENCE|
In the perennial pursuit of profit improvement, most chemical companies have mainly focused on the cost side of the equation,
through initiatives such as procurement effectiveness, workforce rationalization, six sigma Programs to reduce wastage, etc.
Yet, one value creation lever which holds significant potential for driving profitability has been relatively untapped:- Pricing Management. This article outlines how pricing excellence can significantly impact a company's bottom-line. It also shares some of the leading edge practices in this area.
|Pricing as the key lever for profit improvement|
|One common misconception about pricing management is that it is all about raising (or reducing) “list” prices to improve total margin. While “list” price setting is critical, pricing management is a lot more than that. Figure 2 shows some of the typical sources of benefits and the quantum of improvement potential achievable through Pricing Management.|
|Pricing Management Best Practices|
While it is not the intention of this article to present an exhaustive list of practices on how pricing excellence can be achieved, we will share a number of best practices to help companies identify and capture pricing improvement opportunities.
Some of the key pricing excellence practices include:
1. Align strategy and price / product / service offerings to customer worth and needs
2. Develop policies to link price with value received by customers
3. Model the market dynamics and supply constraints to determine optimal price / margin
4. Capture price / value by gaining control over transactional pricing
5. Deploy tools to analyze price performance and construct profitable deals
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