Pricing Process Part 5: Monitoring

Abstract

The main challenge of price monitoring is to measure the overall success of price management in the company. The measurement of success is differentiated in detail for the following two dimensions: hierarchical levels (company, business unit, product line, product) and price dimensions (product, customer, region, sales channel, etc.). In the sense of a pricing audit, the aim is to achieve the greatest possible transparency with regard to performance in price management. The measurement of the pricing index closes the circle to the target definition. Integrated performance measurement on the basis of an overall indicator comprises three levels: financial targets, market targets, and professionalism of the pricing process. While the items of pricing excellence can be adapted to specific sectors and companies, the evaluation process should be standardized. Simple maturity models are not sufficient for corporate practice. Many maturity models have limitations (e.g., inaccurate measurement via an ordinal scale, insufficient delimitation of the maturity level, lack of operationalization of the maturity level via practical criteria, and non-existent implementability for pricing). Among the KPIs which relevant for price management pricing power has an outstanding role. Pricing power includes the ability to pass on costs (e.g., due to inflation) to customers without affecting sales volumes. Quantifying the pricing power of a company, a business unit or a product is of crucial importance. An assessment tool is a basic requirement for measurement. A pricing power score is based on the following criteria, among others: competitive strength index, brand image, market share, capacity utilization (supply-demand ratio), number of competitors and market share distribution of competitors, and relative importance of price compared to benefit criteria.