More and more companies today are investigating pricing improvement initiatives. No wonder. Improved pricing practices help companies increase profitability and recover costs. But doing pricing right takes fortitude, executive level sponsorship, and a strong business case to win over internal naysayers.
My friend Noha Tohamy, a research executive at AMR Research, recently conducted a study of over 219 companies’ pricing practices and issued a Market Services Report entitled “Building a Bulletproof Business Case for Pricing Improvement Initiatives.” While the report is available only to AMR Research clients, Noha has graciously agreed to allow me to share one of the results of this landmark survey. It has to do with payback on investment in the pricing management arena. The results may surprise you.
In today’s economy, companies are cutting back and capital investments are few and far between. But one area where managers are not throttling back is in pricing practices, including pricing decision-making in price optimization. One of the main reasons is that the payback on pricing investments has become even more compelling in these tough economic times. Pricing is the great lever in improving profitability.
Noha’s research reaffirmed all of the benefits that companies typically realize when making investments in pricing initiatives. According to AMR Research, half of the companies in the study indicated that they have achieved a return on their pricing investments in under a year. Remember, most enterprise initiatives require multiple years to demonstrate an adequate ROI (if they do at all).
Here’s the breakdown from AMR Research:
For the pricing management initiatives you have undertaken to date, what has been your payback period (the time it took to recoup your initial investment and reap the financial benefits)?
Less than six months 17%
6 to 12 months 30%
12 to 24 months 25%
Over 24 months 6%
Not sure 22%
Clearly, the results of Noha and her team’s research underscore that pricing as an enterprise initiative should be on the top of every CEOs list of potential project investments. If you like to receive a copy of the full report, please contact AMR research at www.amrresearch.com
Thank you, Noha for sharing your team’s work with the pricing community.