Cees's Blog

Deloitte Consulting has published an interesting report on Price Management and the five myths that paralyze pricing improvements:

Myth 1: The market sets prices
The market might set the average price but companies set the transaction price. Deloitte research shows that up to 70% of transactions at any given company are set below the market price.

Myth 2: Cost-plus pricing works
Cost information is often inaccurate, but even when that's not the case cost-plus pricing ignores overall customer or portfolio profitability and it undercuts the value of the product of service being delivered.

Myth 3: Gross margin is an excellent measure of performance
Obviously, gross margin ignores many of the cost components that drive net margin. Net margin is what lands in your pockets, not gross margin. Therefore better base decisions on net.

Myth 4: Rewarding volume delivers long-term growth
It's not about the size of the ocean, but it's about the motion of ocean. Margin delivers long term growth, not revenue. Focusing on value at the expense of margin creates a sales force that would rather sell a big volume deal with no profit than a light volume deal that's profitable.

Myth 5: Data is too complex to find and use to capitalize on trends.
Maybe a painful, manual and complex process at first instance, this exercise is well worth the effort. The data does not lie.