What Every Manager Should Know About Pricing
Download our free white paper “What Every Manager Should Know About Pricing”
by Andreas Hinterhuber, Department of Management, Università Ca’ Foscari, Venice, Italy
and Hinterhuber and Partners GmbH, Innsbruck, Austria.
Profits are the result of revenue growth, cost reductions and pricing. Ask any smart, high-performing manager about priorities to drive profits along these three dimensions and you will find a simple but surprising truth: managers allocate three-to-five times more effort toward revenue growth and cost reduction than they do toward pricing. Standard marketing textbooks may be partly to blame in their emphasis that pricing is critically important in the context of innovation. The thinking goes: as a manager, I must find the next blue ocean or breakthrough innovation and then get pricing right; in the absence of a blue ocean innovation, there is not much pricing can do, so it is all about productivity and cost reductions. This statement has intuitive appeal, but it is fatally wrong. This thinking leads to actions that severely limit a company’s profitability. In some instances, this thinking leads to outright bankruptcy.