Senior executives across organizations have the strategic objective of reducing or eliminating unintended variation in their business, yet they often ignore variation in pricing. In the words of a Chief Operating Officer for a global manufacturing company, "today we accept a degree of variation in pricing that would get a plant manager fired...." When managed effectively, pricing variation has the potential to deliver significant profits to the bottom line and give companies the competitive advantage they need to succeed in today's markets.
To manage pricing variation, business-to-business (B2B) companies must understand its causes. Take an example of a typical B2B company with the following attributes:
- Has 20,000 SKUs (stock-keeping units)
- Products sold through four distinct channels
- Products sold to 30,000 customers across 30 industries
- Products sold in 30 countries across four regions
In combination with hundreds of pricing decision makers such as business unit leads, sales executives, and pricing managers, these attributes cause significant pricing variation. As illustrated in Figure 1, the outcome is large variation in margins for customers with similar characteristics, ultimately resulting in significantly lower margins.
Figure 1. Pricing variability at a typical B2B company.
Drivers of Variability
In a typical B2B company, many different factors drive pricing variability, including:
- Sales performance
- Analytic insight
- Process execution
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