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Because new pricing models can be tricky, more companies are turning to consultants for guidance. But price consulting doesn't come cheap.
Claire Adrian, CFO Magazine
October 13, 2004
When costs have been cut to the bone and revenue growth is still shaky, a company naturally turns to thoughts of pricing. Many are thus moving from cost-plus pricing to value pricing or variable pricing. But the new models can be tricky, so more companies are turning to price consultants to get it right.
For example, when Concentra Preferred Systems, a Naperville, Ill.-based provider of health-care cost-management services, was recently renegotiating with one of its top clients, it called in pricing expert Strategic Pricing Group Inc., of Waltham, Mass., to assess what it should be charging. "Our next-biggest competitor prices well below us, so we have to be able to [explain] why our pricing is higher," says Concentra CFO Steven A. Flack. Thanks to the new pricing strategy developed with Strategic Pricing, Concentra should be able to retain more-profitable business, says Flack.
The Professional Pricing Society, a national association of pricing experts, has increased its membership from 600 to 2,000 in the past three years. The services offered by its members are also expanding. Firewhite Consulting Inc., in Burlingame, Calif., for example, conducts large Internet surveys, testing different product offerings at different price levels. Firewhite president and CEO Marcia Kadanoff says the firm uses a "science-driven approach, exposing potential customers to various value propositions." Different features and benefits are tested in different combinations. "From that we can tell the customer how to optimize its pricing to get the most revenue or market share," she says.
Cleveland-based PricePoint Partners Inc. specializes in industrial and business-to-business pricing. Co-founder and senior partner Ralph Zuponcic says the firm finds opportunities to improve revenue by examining areas in which loss may occur, such as excessive discounting, poor negotiation skills, or missed opportunities in transaction fees. "We look in all the cracks in the floor," he says.
But price consulting doesn't come cheap. In addition to a small management fee to cover costs, PricePoint receives a percentage of a company's actual price-improvement gain. Says Zuponcic: "We share the risk with our clients, and they all seem to like that."