Segmentation Pricing to Maximize Total Revenue
Companies aim to create product models that target specific market segments based on the willingness-to-pay distribution of customers. The market segments are carefully considered based on the customer sensitivity with price variation. Now the crucial point is that weather the prices meant for these market segments are optimal in the sense of maximizing the total margin contribution of the product line from all market segments.
Obviously this is really a challenging task to realize the prices that maximize the margins in each of the customer segments, given the sensitivity of the market landscape. It is also a daunting fact to ignore optimization because of the reason that 1% price deviation from the margin maximizinprice even without any drop in volume destroys the bottom line by 11.1% for the Compustat (by McKinsey) companies and 8.2% for the S&P companies (by A.T. Kearney). This is due to the reason that the changes made to pricing do not affect any other variables in the equation, except the bottom line. So companies cannot ignore the fact that whatever the damage suffered in pricing directly penetrates to the bottom line.
On the positive side, an improvement in pricing is also equally true in improving the margin at the same rate. Many companies simply miss out significant revenues by not managing prices in the wake of changing market landscape. Market is observed to be sensitive to various macro- and micro-economic conditions; for example, buyers tend to spend more in speeding markets, and become conservative in economic downturns.
Unless a company adopts a strategy to account for the flux in market sensitivity, there is a significant possibility for the company to suffer revenue leakages that are detrimental to the financial stability of the company. Also the cost variations significantly affect the margins and margin maximizing prices. Therefore, the companies do need to periodically manage prices meant for each of the market segments to account for the variable nature of costs of the goods and market demand.
GDRi PRM, the Pricing and Revenue Management, system enables companies to maximize the bottom line companies by applying certain sophisticated and proprietary pricing models to realize the margin maximizing prices for each applicable market segment. Thus the segment prices align with the buyer’s willingness to pay prices. As an end result, companies achieve the best possible margins.
Obviously this is really a challenging task to realize the prices that maximize the margins in each of the customer segments, given the sensitivity of the market landscape. It is also a daunting fact to ignore optimization because of the reason that 1% price deviation from the margin maximizinprice even without any drop in volume destroys the bottom line by 11.1% for the Compustat (by McKinsey) companies and 8.2% for the S&P companies (by A.T. Kearney). This is due to the reason that the changes made to pricing do not affect any other variables in the equation, except the bottom line. So companies cannot ignore the fact that whatever the damage suffered in pricing directly penetrates to the bottom line.
On the positive side, an improvement in pricing is also equally true in improving the margin at the same rate. Many companies simply miss out significant revenues by not managing prices in the wake of changing market landscape. Market is observed to be sensitive to various macro- and micro-economic conditions; for example, buyers tend to spend more in speeding markets, and become conservative in economic downturns.
Unless a company adopts a strategy to account for the flux in market sensitivity, there is a significant possibility for the company to suffer revenue leakages that are detrimental to the financial stability of the company. Also the cost variations significantly affect the margins and margin maximizing prices. Therefore, the companies do need to periodically manage prices meant for each of the market segments to account for the variable nature of costs of the goods and market demand.
GDRi PRM, the Pricing and Revenue Management, system enables companies to maximize the bottom line companies by applying certain sophisticated and proprietary pricing models to realize the margin maximizing prices for each applicable market segment. Thus the segment prices align with the buyer’s willingness to pay prices. As an end result, companies achieve the best possible margins.
"GDRi PRM Maximizes the Product Line Contribution through Optimizing the Prices of the Product Models Specific to the Market Segments."
