By guest blogger: Christoph Meili at Input Consulting AG
When asked about their pricing goals, the majority of managers responds by using business objectives like sales or EBIT and tries to identify the contribution of pricing in the attainment of these objectives. However, setting pricing goals is much more than quantifying the improvement of financial KPI by pricing.
But how do you define stringent goals to manage the impact of pricing on your business? Normally companies have a very firm opinion on how their sales, their EBIT or their market share should develop. Admittedly, having clarity about your business goals is an indispensable starting point. But in order to set stringent pricing goals these global objectives are just a guideline. In pricing projects we are distinguishing between three dimensions which all should be considered in setting the goals:
- Defining the strategic planning units which can be influenced by pricing (for example categories, countries etc.)
- Determining the contribution of pricing in terms of the strategic planning units
- Formulating stringent qualitative and quantitative pricing goals, covering financial, behavioural and price/brand perception aspects
Once your pricing goals are defined, you need to cross-check if they are in line with your business goals in order to prevent a conflict of goals. For example there is a conflict between having competitive prices as one of your price perception goals and being positioned in the market as innovative company with high-end products.
Our experience shows that the potential in optimizing your pricing is about 2% of EBIT. The right pricing goals are one of the key issues in improving your pricing.