It’s one thing to announce a list price increase, another to actually pass it on to customers. Many business-to-business (B2B) companies end up giving back much of their price increases in the form of discounts, rebates or other forms of leakage. Realizing a price increase requires solid pricing processes, which most companies struggle to maintain. For every $1 increase in a list price over the previous year, the median company realized only 68 cents, according to analysis from PricefxPlasma™ powered by Bain & Company, which compares operational pricing data from a panel of companies. There’s a wide variation: The top quartile of companies realized 95 cents on the dollar, while the bottom quartile took 42 cents. Moreover, this yield is unrelated to the magnitude of the increase; companies with the largest list price increases gave back about the same in percentage terms as those with small increases. Four key components go into realizing a higher price:
- targeted strategy―price increases that differentially target discrete customer segments;
- internal alignment―aligned pricing policies and governance help to link the intent of the increase with the actions of the sales organization;
- coordinated motivation―incentive structures and targets that promote price increase goals; and
- effective communication―consistent sales messaging to customers.