Pricing and Profitability Management: A Practical Guide for Business Leaders

Setting Policies to Reinforce Pricing Processes

The Ten Commandments contain 297 words. The Bill of Rights is stated in 463 words. Lincoln's Gettysburg Address contains 266 words. A recent federal directive to regulate the price of cabbage contains 26,911 words.

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Pricing processes should be supplemented with complementary policies when a new pricing structure is implemented. These policies can help fine tune the execution of processes and drive closer organizational alignment with business objectives. In general, policies spell out leadership's expectations in support of a company's efforts to achieve its pricing objectives (e.g., increased revenue, market share, or profitability). Policies can be internally focused to govern the behavior of sales representatives, or externally focused to influence the purchasing practices of customers. Some examples of policies include setting rules for:

• minimum acceptable prices by volume range
• discounts for specific market and customer segments
• standard charges for freight and packaging
• surcharges for product or packaging customization
• service options and associated charges
• financing options and associated charges
• payment terms and conditions.

The framework in Figure 4.13 links the business and pricing strategies to help determine the dimensions for policy setting as well as the specific policies to define.

Figure 4.13 Framework for the Definition of Pricing Policy

Pricing Policy Guidelines

The following guidelines can ...