The pricing power of an enterprise is its ability to effectively manage prices to meet its strategic goals (profit, product penetration, market share…). Enterprises with low pricing power generally believe that prices are imposed by the market and cannot be managed. Enterprise with superior pricing power have identified that price is a critical management lever. These enterprises set clear price policies to achieve their strategic objectives, enforce these policies for each sale transaction and carefully monitor the results to improve price setting on a continuous basis. In order to develop pricing power, enterprises generally mature along a well-defined path with four stages of maturity: Chaotic stage, Disciplined stage, Managed stage and Optimized stage (see Pricing Maturity model).
How to measure pricing power
Pricing power of an enterprise should be assessed for each of the following processes:
- Price setting
- Deal quote
- Price implementation
- Contract management
- Price increase campaigns
For each process, a rating of the pricing capabilities (in terms of organization, human, methodology, data and technology) will help a company to measure its pricing power score and identify key areas of progress.