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  • Marcus Evens
3 Steps to Conducting a Pricing Audit
Have you been having problems with explaining irregular or inconsistent pricing? Lack of pricing analysis leads to regular discounting that's tough to explain at managerial meetings.

"Significant discounts should be the exception, not the norm."

Price audits ensure consistency across similar accounts, maximise profitability and provide an external barometer for measuring prices against the marketplace. Pricing audits also ensure that prices are matched against customer segments to ensure that those accounts that acknowledge value are also paying for it. Often, the result is the discovery of hidden weaknesses that ad-hoc internal price tweaks can’t detect.

With effective value-based pricing strategies, organisations can go after different market segments by delivering a variety product and service offerings customised for each segment. And when good, consistent pricing practices are implemented, everyone wins.
Who stands to benefit?
The organisation becomes more competitive and less likely to instigate a harmful price war. Customers benefit from consistent interactions, pricing standards and an increased focus on fulfilling customer needs. Employees benefit from better execution due to consistent streamlined processes, value leadership and better pricing training. Shareholders appreciate the higher profits achieved by an efficient pricing process that captures the true value of a product or service. While it's not necessary to create a centralised pricing unit to accomplish the following steps, a well-defined set of 'Rules of the Road' and coordinated activities are critical.

The 3 steps of a Pricing Audit:

Define goals
Step 1: Define Organisational Goals and Objectives and Communicate Them Clearly

The primary reason that pricing strategies fall short is because they are not aligned with corporate goals and objectives. Further, many organisations today struggle to maintain a uniform view of their goals and objectives.

Whether it is revenue growth, profitability, market share, return on capital employed, or some other measure, everyone in the organisation must be working toward the same corporate objectives if the right pricing strategy is to be determined. Goals and objectives drive pricing strategies. Pricing tactics flow from a clearly articulated strategy.


Reviewing prices
Step 2: Review Current Pricing Practices

Next, review current pricing practices, discounts and incentives, customer segmentation, competitive landscape, product bundling, tied selling, etc. throughout the organisation. The goal is to assess all areas within the organisation (systems, marketing, sales, finance, distribution, operations and others) that affect or are affected by pricing.
This process will include:

  1. Interviewing the management team
  2. Interviewing the sales force
  3. Reviewing pricing across distribution channels
  4. Benchmarking your company against direct and indirect competitors
  5. Analysing historical data

Define weaknesses
Step 3: Identify Opportunities for Improvement

Once the pricing audit is complete and data have been analysed, opportunities for improvement will become clear. The number and extent of such opportunities will be directly related to where your company currently resides on the SPMG Pricing Pyramid. The Pyramid can also serve as a useful reminder for unfortunate decisions under pressure from price concessions.


Conclusion
Without a strategic and well-executed pricing process, organisational objectives are difficult to achieve and potential profits are almost certainly being lost. A thorough pricing audit can make your organisation more competitive, lead to greater employee and customer satisfaction and enable consistent pricing that responds to market forces, thereby maximising profits and achieving your organisational goals.
About iiHC's Strategic Pricing Specialist
     Michael H. is one of the foremost pricing specialists known around the world for his hands-on pragmatic approach, integrating Value Based Pricing practices within an organisation to strategy development and tactical pricing.

He holds an MBA degree in Corporate Finance & International Marketing from the Olin School of Business at Babson College in Boston, along with a BA Honours degree in Managerial Economics & Marketing. He has consulted to major Fortune 500 companies and other mid-sized companies over the past 15 years, helping them with the development of Pricing Strategies, Tactics, and Revenue and Strategy Management. He started his consulting career at Braxton Associates, the strategic arm of Deloitte & Touché Consulting Group. When he is not consulting/training, he lectures and writes and has recently published his latest book entitled 'The Joy of Pricing'.
E-mail any questions you might have for the trainer to info@iihc.org.

Published On : Wednesday, October 16, 2013