In business and investing, the margin of safety is the amount of buffer that you have above your breakeven target (for a deal) or the intrinsic value of a stock (for investing) to ensure that …Continue reading
Unit contribution margin is the difference between the average selling price of a unit of product and the variable cost of making and delivering that unit. This represents the incremental “contribution” of an additional unit …Continue reading
While accountants are trained to provide a full view of what happened to the finances of a business, an economist or business analyst will speak of “thinking at the margin”. To “think at the margin” …Continue reading
If you’re managing a decent sized distributor, you’ve probably been approached by at least one consulting firm to talk about pricing. The concept sounds good on paper: use a few targeted price increase campaigns to …Continue reading
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 …Continue reading
As a cautionary tale, we present to you a Vegas story in which a janitorial supplies distributor’s best price was crushed by a food service competitor who had already covered their cost to serve.
In your own business, where are you at risk? What kinds of competitive barriers can you throw up (product or service) to defend your market position? Playing offense, can you use this approach to take share within an account?
Because there’s no guarantee that what happens in Vegas, stays in Vegas
True Strategic Pricing isn’t about simply charging more money In fact, that’s a very risky long term value creation lever. The market eventually figures out what you’re doing.
Pricing leaders know that you need to be as good at creating value as your are at claiming it.
For a sustainable margin lift, look at these case studies exploring how to reshape the value you offer customers – and cost of delivering that value – to create a competitive advantage.Continue reading
Few things are quite as powerful in business as being able to “show me the money”. Pricing is no exception. Setting up a good system of pricing performance reports will help you achieve a broader …Continue reading
5 Reasons To Implement Pricing Analytics
The concept of pricing analytics can be applied to almost any business function. However, most businesses apply this theory to their pricing models for five reasons:
Price and promotions are critical to the success of any business. The process of assessing cost effectiveness is based on different mathematical formulas. A firm’s ability to understand these formulas and apply them in a cost effective manner is important. To increase profit, a firm must know how to maximize cost effectiveness, while controlling expenditure for promotion.
Customers are constantly looking for the best value. The sale of a good has nothing to do with its price. The willingness to pay less than what is called the optimal price is the determining factor in customer loyalty. Any business that wants to get more customers will have to lower prices, especially for products they recognize as being expensive.
Due to inflation, the costs of living have increased over time. This has become a challenge for firms in the United States. They may want to offer value for money, but it is difficult to do so. Understanding the effect of inflation on product prices is very important for any firm. This understanding helps to identify cost savings and ultimately make better decisions.
Competitors may be losing ground in the marketplace. Competing against other business with similar product lines will help the firm to stay ahead of its competition. Competing with other businesses on the same core competencies can also provide a competitive advantage.
Understanding competitor’s financial performance is critical to improving profitability. Some firms will buy up the competition’s assets in order to reduce their level of vulnerability. Any firm that plans to compete effectively should create its own cash reserve to protect itself against competition.
Competition is defined by many factors, including competitive behavior. Competing against your competitors for market share is a key element in improving profitability. While there are many ways to do this, it is very important for firms to understand the competitive behavior of the business they are competing against. It is a good idea to use a pricing model with price sensitivity that can be adjusted to reflect competitive behavior.
As the company grows, the firm’s organizational structure may change. To improve profitability, firms may need to understand the effect of change in organizational structure. For example, a firm may grow to encompass many operations that were previously operated by one division. By understanding the effect of change in organizational structure, a firm can take advantage of opportunities to improve profitability.
Pricing models are useful tools for any business, no matter how large or small. However, applying pricing models to smaller firms has proved to be more challenging than applying them to larger firms. This is because smaller firms have lower price sensitivity. If firms must increase prices to cover higher profit margins, they will want to know how much they will need to increase their prices to meet their profitability goals.
Companies use various techniques to improve profitability. Sometimes the firm chooses to do something directly or indirectly. Sometimes a firm simply spends more money. Some firms choose to implement a specific pricing strategy, such as increasing their margin of price or reducing expenditure on price and promotions.
Pricing analytics can be used to implement a variety of pricing strategies, including: tracking costs; integrating internal and external resources; creating financial incentives; implementing cost control measures; understanding competition; selecting the right marketing mix; implementing a product strategy; improving the life cycle of products; understanding the implications of pricing on market share; and implementing a pricing strategy. These are all valuable techniques for any firm, because it helps to improve profitability. Successful pricing can have a direct impact on the firm’s sales performance.
Pricing analytics can provide real time information on pricing for a business. This allows the firm to make informed decisions about pricing, track any changes, and continually evaluate the effectiveness of the strategy. However, it is important to evaluate whether the strategy is working or not.