Price Leakage

Abstract

Price leakage is the overall term for the analysis that will document any product level average selling price variances (product level leakage) versus major competitors, as well as the selling price concession trends over a defined time period (aka the price waterfall). Simply put, you want to demonstrate, through data, that the prices charged for products were reasonable compared to competitor’s similar products and also, in direct alignment with maximizing value, and that the company hasn’t given away unnecessary price concessions (increased discounting, rebates, promotions, etc.) to sign customers to contracts. Products that do not attract a selling price that meets a minimum margin threshold (usually established by finance) will also be analyzed and reviewed here. Again, this is an initial review to gain some understanding of the severity of the issues at hand. Price leakages will play a major part of later analysis in the overall price plan. Price waterfall is a term that describes the “takeaways” from a product’s list price toward the actual price paid by customer. The net (or actual) price would be list price minus all discounts, rebates, promotions, costs of producing the product, and the like. What you want to then understand is that net selling price truly represents the maximum value that customers would/should be paying for a particular product versus any reasonable competitors.