[pic]

[pic]

PRICING POLICY

Introduction
The fastest and most effective way for a company to realize its maximum profit is to get its pricing right. The right price can boost profit faster than increasing volume will; the wrong price can shrink it
Just as quickly. Yet many otherwise tough-minded managers shy away from initiatives to improve price for fear that they will alienate or lose customers.

Consider the example of JCPenney stores for Queen sized mattress. The list price is $1699 and after giving away all discounts, the pocket price comes down to $630.

Price realization is about decreasing price leakage, increasing pocket price and hence keeping a higher proportion of the list price that adds to the bottom line (profit).

The leverage and payoff of improved pricing are high. Compare, for example, the profit implications of a 1 % increase in volume and a 1 % increase in price. For a company with average economics, improving unit volume by 1% yields a 3.3% increase in operating profit, assuming no decrease in price.
On the other hand, 1% improvement in price, assuming no loss of volume, increases operating profit by 11.1 %. Improvements in price typically have three to four times the effect on profitability as proportionate increases in volume. Reverse also applies in this case: a mere 1 % price decrease for an average company, for instance, would destroy 11.1 % of the company's operating profit dollars.

Effective transaction pricing
Effective transaction pricing calls for a careful study of the waterfall. All elements of the waterfall must be considered. Managers should not exclude any low-price customers, regardless of their history or relationship with the company, from such corrective actions. Pocket price data must determine which customers require remedial price action. Tough