The topic of pricing must be considered as a multidimensional issue and encompasses much more than just deciding whether the price point for a product should be € 7.50 or € 7.89.

The overarching framework for pricing is a clearly defined and with the corporate strategy aligned pricing strategy. It ultimately defines not only the level of profit margins but also influences how products as well as the company and brand are positioned and perceived in the market. Clarity about this strategic framework is on the one hand the basic prerequisite for successful pricing.

On the other hand, pricing also has an operational component, with large, occasionally even trivial, but almost always ignored optimization potentials that can lead to rapid EBIT increases. Pricing optimization potentials, for example, can lie in the following areas:

• Logistics and service fees: Do you know what proportion of your logistics and service fees are actually billed to the customer in the end? In many executive floors, it is known that exceptions apply for individual customers, yet precise analyses for this are rarely existent. This lack of facts and silent acceptance lead over the years to fewer of these fees being actually billed to customers.
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• Bonus agreements: Are you still paying bonuses for money that never landed in your bank account? If your calculation basis for bonus does not consider your customers’ discount deductions, the answer is “yes”. This simple pricing lever is commercially obvious, but often not considered due to a lack of awareness as well as frequently separate processes and responsibilities.
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• Performance-related conditions: Do your conditions (e.g., discounts, bonuses) have a real performance link, or are they rather granted without any performance link? Conditions have a steering effect when they are linked to a certain prerequisite, i.e., the customer gets a better condition if he meets certain requirements (such as sales increase compared to the previous year or participation in sales training). This can also avoid critical situations that arise when employees move from one customer to another and take the knowledge of the agreed conditions with them – without a performance link of the conditions, one quickly gets into a situation of having to explain oneself.
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• Optimal price points: Are you fully exploiting the willingness to pay of your customers with the price points for your products and services? Do you have appropriate processes/tools implemented to ensure that, for example, the best possible price is always achieved across regions and/or sales forces? Measures to identify optimal price points (e.g., conjoint measurement, price sensitivity meter) or calculation logics to approximate the best possible prices or to increase them require very specific pricing know-how and can especially in medium-sized companies lift significant potentials.
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• Knowledge Management: Is your sales force up to the well-trained buyers on the “other side”, do they know the necessary negotiation tricks and are there internal structures to exchange information and collectively improve? Experience shows that even experienced salespeople benefit from new negotiation tricks and that regular internal exchange about successes and failures in customer negotiations leads to continuously raising the pricing competencies of the entire team to a higher level.

What can companies now do to identify and leverage these hidden EBIT potentials? It doesn’t always require highly complex measures, many are simple, but must be tackled and consistently implemented.

• Creating transparency: Through initial analyses, e.g., of the calculation and non-calculation rates of logistic and service fees or the structure and logic of the bonus agreements, the importance of this topic must be made aware to all involved parties.
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• Defining solution approach/target image as well as objective: In the next step, a clear solution approach must be developed in a joint process with management, sales force and possibly internal service, which is also procedurally and technically feasible. Here, for example, the question needs to be answered how future performance-related conditions can be designed and implemented in day-to-day business. In addition, clear and ambitious objectives for the implementation must be defined.
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• Identifying support measures: It is important not to leave the sales force alone with these new approaches and objectives. It is advisable to provide the sales force with information such as regular analyses, tools, or even argumentation aids to better achieve the defined goals.
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• Define reporting and escalation steps: The introduction of mostly monthly reporting at the management level in combination with escalation steps in case of unexpected development is of essential importance. Only if the identified pricing issues are in regular perception, the hidden potentials can also be leveraged.
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One thing must be clear despite everything: Not every identified optimization field will be implemented to 100 % in the end. There will always be that one customer or one situation where an exception is necessary. However, a detailed consideration of the topic of pricing is definitely worthwhile. Experience shows that the costs for such a project are easily refinanced by the identified potentials in the shortest possible time.