As its name suggests, demand-based pricing is a method that uses the buyer’s demand, based on an estimate of a good’s or service’s perceived value to the buyer, as the central element in setting price. Pricing strategies are most important because they can have a disproportionate impact (positive and negative) on a company’s bottom line. Managing prices has always been an activity of keen interest, but it has become even more so over the past decade as a result of the constrained pricing environment.
Topics: Performance Management, Sales, Human Capital Management, Office of Finance, Operational Performance Management (OPM), Analytics, Business Analytics, Business Performance Management (BPM), Financial Performance Management (FPM), Sales Performance Management (SPM), Price Optimization, Profitability, Software
Two software applications I follow, price and revenue optimization (PRO) and sales compensation and incentives, can be highly complementary when used together. Unfortunately, since they typically are developed and sold by different kinds of software vendors, scant attention has been paid to the value of using them in tandem. I advise companies that have adopted a PRO strategy to use an incentive management application also to support and reinforce their optimization efforts. It is also part of our research agenda and education on sales for 2011 and beyond.
Topics: Predictive Analytics, Sales, Human Capital Management, Office of Finance, Operational Performance Management (OPM), Business Analytics, Business Performance Management (BPM), Financial Performance Management (FPM), Sales Performance Management (SPM), Workforce Performance Management (WPM), Price Optimization, Profitability
Activity Based Costing (ABC) is one several popular techniques to apply marginal cost analysis to arrive at a more accurate measure of a product’s true economic cost. It became popular in the United States starting in the 1980s (earlier in Germany) as it became clear to many that traditional cost accounting techniques do not reflect the true, economic cost of production in complex, multi-product environments. Consequently, companies might price items higher than they should and lose market share, or consider them unattractive from a profitability standpoint and possibly under invest in them from a sales/marketing standpoint. Or, the company’s profitability might be impaired because standard cost accounting measures do not enable them to determine the decisions that will maximize their profitability. Sales people might be given the wrong set of incentives, heavily promote less profitable products while ignoring high margin ones. ABC attracted a great deal of attention in the English-speaking world in the 1980s and early 1990s because proponents presented compelling arguments for its adoption. Unfortunately, it quickly fell out of favor because the time and cost of doing the type of “boil the ocean” comprehensive analyses associated with it at that point did not provide commensurate benefits. This was especially true because marginal cost analyses must be performed periodically to keep them up to date.
Topics: Operational Performance Management (OPM), Business Performance Management (BPM), Financial Performance Management (FPM), Sales Performance Management (SPM), Cost Management, Maxager, Profitability