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Pricing Review and Analysis

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The process of setting prices varies substantially from company to company and may vary among products within a company. A pricing review examines the current pricing policies and their appropriateness for the market and competitive environment. The goal is to evaluate the effectiveness of the current pricing policies, identify opportunties to improve the process without placing an undue burden on the company. A basic review utilizes data that is readily available within the company and identifies data sources and/or studies that are likely to have the greatest value in improving pricing decisions. More in-depth reviews will also include additional studies, such as cost, demand, and competitor analyses.

How sophisticated is your pricing process?

The Lead Standard

The Lead Standard: These companies view pricing as an afterthought and only make pricing decisions when forced to do so. When prices are set the process is often arbitrary and based on intuition. The pricing process becomes like a lead weight around the business dragging down profits. Prices usually either leave money on the table or price valuable customers out of the market.

The Bronze Standard

The Bronze Standard: Companies at this level of pricing spohistication have systemtatic guidelines and processes are put in place to determine prices. Typically these basic guidelines are based around internal data that is readily available such as fully allocated cost estimates and may be supported by a
basic knowledge of the prices charged by key competitors. Basic pricing processes are typically take the form of a markup over a measure of fully
allocated cost. Price is generally set to achieve a profit target based on an
expected level of sales.

The Silver Standard

The Silver Standard: The next level of pricing sophistication includes developing a systematic approach to understanding the value the firm's products and/or services offer customers relative to the offerings of competitors. This makes it possible to more effectively select target markets. Under a value drive approach prices and discount policies are set to capture a fair share of the value the offerings provide to customers.

The Gold Standard

The Gold Standard: At this level companies are recognize that their pricing actions will impact the prices charged by competitors. Management at this level is thinking strategically about the long term consequesnces of their pricing polcies. They form hypotheses about how they expect competitors to respond to changing prices an optimize given these expected responses. They determine whether they should assume a price leadership role in the market or if they are best off following the lead of another.

Where does your business fall in this spectrum? We can help you improve your pricing process and help you achieve the Gold Standard.

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