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Value Stream of Pricing and Process Controls
A pricing process requires a well-defined set of indicators to be quantified to make it meaningful and useful. Quantification is a critical element of any pricing process because the cost of any given activity is influenced by the mix of inputs and outputs.
In the same way, different activities may require different inputs and outputs in order to be efficient. The mix of inputs and outputs should be measured in order to determine the most appropriate process level for that activity.
For example, if a service has many individual elements, then it will need the implementation of processes in order to create these elements. These processes will include a set of controls which will allow the process to become more responsive and more profitable.
Measurement of the value and efficiency of an activity is known as process control. Price targets and quantitative goals can be set for an activity or a group of activities, but without process controls, it will be difficult to gauge the effectiveness of the activity.
It is easy to think of the work in an organization such as the sales function. The activities in this function are commonly well defined and therefore there is not much need for control measures.
This is the case with the product or service, which is the “headline” of pricing, and it will have clearly defined pricing targets. The rest of the activities in the organization are not as easily defined, and therefore a lack of target pricing will lead to inefficient activities and a lack of profits.
So, how can an organization that only has one sales representative be so successful at meeting their goal of meeting their quota of valuable outputs? The answer is that they can use “quantification” in their pricing processes.
A pricing process needs to identify all the methods and activities in the organization in order to identify the “pricing problem”. Once a list of activities is identified, then it will be easier to implement a quantitative process that will allow them to measure the efficiency of the activities. This also influences customer management decisions such as whether or not you want to offer a price match.
When an organization is dealing with a wide variety of activities and not just a single activity, it is important to find a process that can accurately classify the activities. Many people will use the CCA Method which is designed to classify activity types based on activities, processes, and costs.
Other people will consider other procedures which can be categorized by specific activities. The more common process control method involves the use of several processes that are usually grouped into processes that are very well defined.
Using process controls also allows for the creation of targeted price targets. By creating targeted price targets, the pricing process will be more efficient and the enterprise will be able to focus on activities that are more valuable.
When the focus of the organization is on the profitability of an activity, then using process controls will allow for the development of qualitative and quantitative targets. The ability to use process controls is a critical part of effective and efficient pricing processes.