An organisation with creative, intelligent, and responsible pricing management capabilities will navigate the Brexit barriers by managing all three profit levers, including the uncertain and volatile ones (cost and volume). What separates these thrivers, survivors, and strivers is a strong capability around price management and remembering a key factor: scale matters.
Not all price moves are created equal. This applies to both the scale of the execution within the organisation and the degree of the price change itself in market. In addition to varying by customer, price elasticity is rarely linear. A few pence can make a big difference, and it is important to know where thresholds and “dead zones” exist along the demand curve. Additionally, price elasticity between two price points is often different for increases and decreases. In other words, it is dangerous and misleading to use price elasticity numbers gleaned from promotions (where the price move is a decrease or discount) to estimate reaction to a list price increase.
The chart above underscores a distinction we made early in this paper. When times are good, companies tend to see investment in pricing, such as the work to create the chart shown above, as a bonus or way to get an even greater edge in a market. It can take a company from good to better, or from better to best. When times are uncertain, it can take a company from dying through surviving to truly thriving.
Again, the lesson here is not about knowing about pricing according to a threshold, but rather creating capabilities in the organisation to:
- Recognise potential effects and their implications on pricing
- Ask the right questions and collect accurate data to guide real-life pricing decisions
- Derive strategic recommendations from this data
- Socialise these recommendations in the organisation
- Monitor the impact in order to improve future pricing decisions.
Has the team thought about portfolio effects? Have they considered competitive reactions? Have they considered and modelled different effects due to company- and industry-specific realities, such as time lag reactions of demand, customer planning timelines, sales force incentives, seasonality, and PR reactions? Put another way: Have you moved away from reactions and guesswork and beyond data and knowledge to scenario-planning and wisdom? The greater the scale, the more important all these questions become for a business.
What does successful price management entail? Simon-Kucher & Parters has identified three key factors:
#3: Scale matters