Title: Pricing Processes for Component Manufacturers in Mechanical and Plant Engineering
Authors: Hans-Christian Riekhof, Philipp Wacker. (2012)
It has not yet been recognized in all companies that considerable value creation potential can be tapped through price research and by checking the pricing processes. Pricing today proves to be a multifaceted management task due to increased complexity. It “includes analysis and planning tasks as well as decision-making and enforcement functions, but also the design of the associated price organization in the company.” In other words: Pricing can and must not only be considered as one of four marketing instruments within the marketing mix; Pricing is a strategically important business process that requires the attention of management.
Nevertheless, the topic “price” is not always approached with the indicated professionalism in practice. This phenomenon is also evident in the industrial goods sector and specifically in component construction for machines and systems, as the present study shows. There are many possible reasons for this. For example, product programs often have an unmanageable number of products. Customer portfolios consist of many small customers and a few large customers from various sub-sectors, whose specific conditions are often difficult to compare. In addition, business is often conducted internationally in very different regional markets with equally different market price levels. Reliable and systematic price decisions are therefore difficult to make. From conversations with managing directors and also from pricing projects in the B2B area, we know that medium-sized companies in particular have great difficulties in mastering pricing complexity.
On the other hand, the price has some positive characteristics that make it appear particularly interesting compared to the profit drivers “costs” and “quantity”. First of all, the price ceteris paribus has the greatest influence on profit. A one percent price increase, for example, can already increase the result by an average of 9.4% according to a McKinsey study. Furthermore, the price is a marketing instrument that does not require any investments in advance, because price changes can be implemented quickly, and customer reactions also become visible faster than with other measures. Especially in the B2B area, it can be assumed that product modifications are often complex, that a competitive advantage can hardly be achieved solely through superior communications and advertising, so that price and distribution or sales strength have a rather higher relative importance. To find out how professionally price management is designed in German companies, we asked 377 companies from various sectors about the topic “Pricing Processes” in our study. This rather basic study was the starting point to deal with the topic of pricing processes also in depth within the industry of component construction for machine and plant engineering. Our empirical investigation described in the following gives a good insight into what pricing processes in the component business look like today.
