Companies have been experiencing relentless pressure to reduce prices of their products. The pressure comes from cost cutting by customers that contribute to overall decrease in spending.
Increased purchasing power of major retailers and bulk purchasers that force producers to increase volume discounts, increased capabilities of customers to compare prices and seek alternative sources of goods – as brought about by the Internet, and significantly lower labor costs in manufacturing goods. In this environment, companies can no longer rely on the usual means to increase profitability - increasing sales and production volume, reducing operational costs and banking on fat margins.
The fastest and most effective way for companies to maximize its profitability is to manage prices properly. Most shy away from price management initiatives because most think that it is all about increasing prices across the board – and fear that they will lose customers as a result.
Price Management is about determining the most appropriate pricing for each customer, one transaction at a time. Appropriate pricing means knowing the real price you get after applying discounts, rebates, and other charges and deductions – after that, you can now determine how much you are making for each transaction for each customer. To capture pricing opportunities, companies must implement pricing strategies and solutions centered on a simple and yet, powerful tool: the Price Waterfall.
The Price Waterfall shows companies how much revenue and profit they are really pocketing from each transaction or from a set of transactions – for a single or multiple sets of customers. It is also a tool to help spot and capture opportunities for transaction level pricing. Finally, it is also a tool that shows all the variables and factors that affect prices, and allows companies to control and manage these variables to increase earnings.
When changes to pricing are introduced because of valuable insights gained on pricing performance, and policies are implemented (in discounting), e.g., companies no longer overlook opportunities for maximizing profit. It does not stop there – future transactions are still further analyzed to gain more insights to further improve pricing policies and introduce more profitability – all without making significant decreases in volume, nor drastically reducing sales, production and operational costs.