Five Additional Ways Companies Can Leverage Price to Increase Profit

As companies seek additional ways to increase overall profits and improve overall business performance in a challenging economic environment, business leaders are increasingly focusing on their company’s pricing strategies as a critical means to enhance profitability and cash flow.

The following article is a continuation of the prior article by Cleveland-based Price for Profit which discussed Five Ways Companies Can Increase Profit through Smarter Pricing. Highly-skilled CFOs for growth and middle companies need to play a leading role in enabling their management teams to enhance pricing strategies to achieve company goals.

By Chris Donnelly, PRICE FOR PROFIT

Our prior article covered the five fundamental ways you can leverage price to deliver bottom-line results. As you take stock of your pricing actions, consider the following tactics to refine your pricing strategy:

1) Utilize product lifecycle to differentiate pricing.

Proactively manage the price of each product through its life by knowing where your revenue comes from – primarily OE, primarily aftermarket, or somewhere in between – and intentionally set different price premiums accordingly. For example, don’t assume obsolescence necessarily means heavier discount.

2) Protect your aftermarket margins from private label pressure.

Protect your aftermarket margins by knowing when and how to say no to private label pressure from others looking to capture aftermarket margins.

3) Realize the true value of bundling.

When pricing kits, be sure the value of the kit reflects the true value of the service provided, not the sum of its parts. Many organizations underestimate the value they are creating by bundling products together, eliminating the need for ordering, shipping, and inventorying multiple SKUs.

4) Use promotions to drive desired behaviors from your partners.

Be targeted on your promotional spend throughout your channels. Make sure your partners have earned the right to the promotions you offer. Keep product-based promotions fresh by aligning them to your product lifecycle strategy and measuring their relative effectiveness.

5) Leverage versioning as an opportunity to creep margin.

You may need to be aggressive on price to win the initial business. Once you have the business, stay vigilant on pricing and use new opportunities like product versioning to systematically improve margins.

Make Pricing a Competitive Advantage

Pricing, like Lean manufacturing or other quality improvement initiatives, is a continuous improvement process and not a one-time initiative. Once you implement pricing strategies or actions, measure your results regularly, learn, adapt, and continue to leverage this powerful profit lever.

ABOUT PRICE FOR PROFIT, Strategic Pricing Consultants

PRICE FOR PROFIT delivers pricing expertise and guarantees increased profits for B2B manufacturers and distributors through active price management.  Our advisors are a partner in profit growth, formulating customized, data-driven pricing models, improving internal processes and elevating internal pricing capabilities, because pricing is the most competitive profit lever a company has.  For more information on how we can help you increase profit, contact Chris at cdonnelly@priceforprofit.com or visit www.priceforprofit.com

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