By Product Pricing – Treasure From Trash!

Many manufacturing processes, especially in basic industries, produce more than one output. For example, chemical plants often produce a basket of chemicals. This is a result of breaking chemical compounds into smaller molecules. These other products are called byproducts. And by-product pricing strategies can have a significant impact on your profitability.

Two common cases: food waste and recyclable scrap. Food waste can be fed to animals. Many cutting and shaping processes produce scrap. Scrap can often be put back into the machine that created the original roll of material. In the paper industry, we call scrap “broke”. Our broke went back into the paper mill, saving us money on fiber.

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When To Use Competitor Oriented Pricing

A competitor oriented pricing objective sets prices in response to competitor pricing decisions. This type of pricing strategy is common in hierarchical markets, where there is a good / better / best ranking of potential products. It is also common in highly transparent commodity markets. Both situations require you to carefully manage your risk of losing volume due to price.

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Turnaround Strategy: Survival Pricing

You may safely assume that if I am in your conference room, I’m not there to hand out the Jack Welch award for business excellence. I specialize in turnaround management. Specifically the commercial parts. This includes managing pricing. Call it survival pricing.

Most of the rest of the articles on the internet don’t do this topic justice. Here’s the real deal.

In a survival situation, every price has purpose. We have few moves, so we use them wisely.

Here’s why I gave you that price….

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When To Use Sales Oriented Pricing

A sales oriented pricing objective uses pricing to facilitate sales and market share growth. The goal is to use pricing as a tool to help drive “smart growth”. Thus, companies using this strategy will discount prices where it is likely to create growth. However, sales oriented doesn’t necessarily mean sales driven: they will likely stand firm on price elsewhere.

While margin improvement is a common pricing goal, there are certain situations where a sales oriented approach makes a lot of sense. We are going to explore a few of these.

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Career Paths: What Does A Pricing Analyst Do?

The role of a pricing analyst varies between companies although there are a couple of fairly common “archetypes” that a job applicant can use to understand what they are getting into. While these are all technically “pricing jobs”, the specific requirements of the role can vary notably and may require a candidate to gain additional experience outside the pricing team.

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Goal Setting: The Truth About Change

Every executive I’ve ever met seems to love change programs. They’re excellent fodder for any update you need to send up the line. And in some cases, they might even generate actual results…

That being said, organizations appear to systematically misjudge the time and effort required to deliver these beasts. Various statistics from leading consulting firms point to a high failure rate for corporate strategic initiatives. Perhaps some of these might have been salvageable with different assumptions.

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Getting Run Over By a “Paid For” Truck

I stared at the email and fumed. What do you mean we lost the business?

This wasn’t driven by pride or ego. We really HAD provided them our best price, quoting a pricing level where we should have been assured of victory. This proposal was offered at break-even pricing to protect other business in the account. On a generic spec, commodity grade product. Where we had the lowest cost in the wholesale industry.

And we had just… been owned. Not merely losing the business, but getting buried.

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Strategic Flaws of Statistical Price Targets

These days, everyone in the analytics space has a pricing product to talk about. Toss enough transaction data points at the problem, you’re going to get a few insights that may help you earn higher margins. Even better, moving the pricing process to a modern software tool often improves your control over pricing errors and sales rep concessions.

Can this work? Absolutely. For an organization with weak pricing practices, the first wave of pricing optimization often yields brilliant results.  For a typical manufacturer or wholesale distributor, this can raise your net profit margin by one to three percentage points. Given the low margins in many of these industries, this is a meaningful improvement in the overall profitability (and thus, valuation) of the business.

But you need to have a careful plan for Act II. There are limits to how far you want to ride this horse.

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