Price & offer management
The price of a product or service is difficult to describe objectively and depends on many factors, such as price perception or communication. Our Pricing Excellence tool provides a systematic approach to optimizing sales and pricing.
Market saturation, overcapacity, increased price awareness, stronger competition – these are just some of the major challenges facing companies in most markets and industries today. The Roland Berger pricing excellence approach can help you tackle these challenges head-on. One client of ours – a producer of packaging materials in the highly competitive commodity business – used our pricing excellence approach to improve profits by 39% annually, the equivalent of around EUR 8 million. A leading bank managed to increase profits from its retail business by 47%, with cost-neutral growth in revenues and profits of EUR 258 million per year.
Price management has a powerful influence on profits. Price is a subtle variable that depends on a number of different factors, many of them difficult to pin down exactly. They include factors such as subjective price perception by customers, customers' subjective willingness to pay, price modeling and the way prices are communicated.
Optimizing prices is impossible unless you understand – and master –their various subjective elements. The Roland Berger pricing excellence approach combines these rules for optimizing pricing with industry-specific best practices and tailor-made solutions. A typical four-month pricing excellence project covers its costs – and starts delivering – after just four weeks!
The five success factors of pricing
Our basis for successful pricing strategies is the Pricing Excellence tool, which provides a systematic approach to optimizing sales and prices.
These are the five key areas where companies can take action to optimize prices. In the first three areas, Roland Berger offers unique solutions that time and again bring palpable results:
We ensure that our clients examine all the relevant areas for pricing: Price perception and communication, pricing level and structure, price dynamics, price erosion and cost inflation. In the fourth and fifth areas – price erosion and cost inflation – we use established methods. The key to success here lies in getting the individuals responsible closely involved in the implementation, turning them into multipliers.
- We help our clients improve price perception and communication in a targeted way
The Roland Berger pricing excellence approach is based on perceived prices. We help companies first of all to measure how the prices of their goods and services are perceived externally, and then to improve on them.
- We help our clients optimize their pricing level and structure
The Roland Berger pricing excellence approach focuses on differences to competitors, allowing companies to anticipate customer behavior. The key here is cross-price elasticity.
- We help our clients spot price dynamics early on
Competitors react in an asymmetrical way and often undermine price recommendations based on static assumptions. Our pricing excellence approach analyzes competitive reactions and trends in a dynamic market model.
- We help our clients minimize price erosion
Reducing price erosion is a no-brainer. The challenge lies in implementation. The million dollar question is: Does the company have a consistent, performance-oriented system of terms and conditions, and does it avoid price leakages from uncontrolled discounts, bonuses, provisions, commissions and the like?
- We help our clients avoid cost inflation
Cost inflation causes margin pressure. Companies must continually check that their offering does not give "too much" added value to customers and if they can save on costs.
Benchmarks and best practices
The Roland Berger Pricing Pilot helps our clients measure their pricing performance and then compare it with benchmarks. It includes an internal company check between different divisions, an industry check with competitors and a best-practice benchmark with the "best of best" in pricing across different industries. The Pricing Pilot measures how well the four enablers – technology, methods, strategy and organization – are integrated into pricing. It also reveals the effectiveness of the 12 key pricing processes at the company in question:
Our key lesson learned from projects using the Pricing Pilot has been that, typically, companies do not define their pricing strategy clearly enough. This failing leads to what is commonly known as the "hog cycle" – when demand grows, companies raise their capacities rather than prices, and when demand falls, they lower prices. As a slightly more kosher alternative to the hog cycle, we propose four strategies for optimizing pricing:
- A mass-market strategy (low prices, big market share)
- An attack strategy for market entry (low prices, small market share)
- A niche strategy (high prices, small market share)
- An excellence strategy (high prices, big market share)
Each of these strategies makes sense in specific market situations.
The levers available to companies for pricing are not just industry-specific. They also depend on whether we are talking B2B or B2C, project or product business, and so on. Individual projects have a one-piece character, so firms don't need to calculate a "price response function" or the like. Their optimization strategies relate to evaluating the probability of later modifications to the project, generating follow-up business and dealing with the causes of lost orders. In product business, our clients can implement the pricing excellence method. This approach to pricing looks at relative prices rather than absolute prices, perceived prices instead of real prices and considers dynamic competitor reactions.
For example, one of the most insidious problems in product pricing is that the internal perspective of the sales team can be very different from the external perspective of the customer. By showing our clients how customers actually perceive their prices, we help them to avoid stressing overvalued decision criteria in their marketing and to highlight previously undervalued criteria. Discount policies also frequently have room for improvement.
Far too often, sellers have no incentive not to use their discount budgets. To avoid granting discounts without any proof of effectiveness, our clients cut their discounts down to the level of average usage, calculated over several years, and hold up agencies that make little use of discounts as an example of company-wide best practice. These are just two examples of the many different actions companies can take to optimize product pricing. Individual solutions need to be reached on a case-by-case basis, for different industries such as financial services, retail, consumer goods and spare parts. In addition, every company has its own specific situation and pricing strategy.