Pricing Strategy and Pricing Operations
Pricing activities affect or are executed by different people in a company where a shared understanding of purpose is as critical as the lifeline of the company itself. It is surprising how many business leaders believe that the price of a product or service is just math done by or one or two people as a result of a simple work flow. When business leaders do not understand the complexity of their pricing function, they not only compromise careers of their pricing professionals but also unintentionally drive away from profit.
It is true that the price of a product for a customer is derived from a list price or MSRP after factoring in discounts, concessions, incentives, rebates or credits depending on the industry. But the process of deriving a price point can be complex because often different functions manage pricing at a strategic or operational level. Pricing strategy is outward looking and refers to the company’s choice of positioning itself with respect to their competitors based on product attributes, quality, and brand etc. Whereas, pricing operations involve mainly internal processes for modifying list prices and control processes to ensure compliance to pricing guidelines at the transaction level.
Six Sigma Pricing is applicable to pricing operations and not for designing or choosing pricing strategies. Clearly defined pricing processes that are well-understood throughout the organization bring greater success in implementing the chosen pricing strategy. Nowadays, whenever I read about the possible slowdown in our economy, I recollect from Robert Phillips’ book (Pricing and Revenue Optimization, Stanford, 2005), “Pricing decisions are becoming increasingly tactical and operational rather than strategic.” Six Sigma Pricing can help companies stay on the path of profitability regardless of the business climate.
Six Sigma Pricing