Executive Summary

Pricing remains one of the most under-utilised levers in business performance. While companies obsess over sales targets and cost controls, silent margin erosion continues unchecked due to outdated pricing models, inconsistent practices, and a lack of pricing ownership. This white paper outlines how a strategic focus on pricing can deliver material improvements in EBIT, enterprise value, and organisational effectiveness. It introduces key benefits, risks, and specific actions CEOs and Managing Directors can take to unlock their hidden pricing power.

1. The Strategic Value of Pricing

Over 25 years and 160 pricing diagnostics, one truth has emerged consistently: pricing is the fastest, cleanest lever for margin expansion. Yet in most organisations, it's still treated as a by-product of sales, not a strategy in its own right.

CEOs who focus on pricing benefit from:

• Higher earnings with no need to grow volume
• Tighter control over discounting and customer negotiations
• Greater resilience to cost fluctuations and procurement pressure
• Stronger alignment between commercial teams
• Faster, lower-risk change management compared to system-wide transformations

In short, pricing isn't a cost. It's an untapped asset.

2. From Cost-Plus to Value-Based: A Strategic Shift

Many businesses remain locked in a cost-plus or commodity mindset. This creates a ceiling on margin and leaves value uncaptured. The most effective organisations now:

• Set price based on customer value, not internal cost
• Use segmentation and customer tiering to match price with willingness to pay
• Train sales teams to defend price, not default to discount
• Move away from 'one-size-fits-all' list pricing to modular, dynamic structures

Case in Point:

• Caterpillar shifted from flat rate pricing to outcome-based pricing for its equipment and service bundles. By emphasising uptime and lifecycle cost savings, Caterpillar reinforced its premium brand and extracted pricing based on value delivered, not iron sold.
• DuPont implemented a structured price discipline model across its specialty materials portfolio. Leveraging product segmentation and value communication tools, DuPont focused on charging a premium for differentiated applications in agriculture, electronics, and healthcare.
• Eastman Chemical invested in pricing analytics and customer tiering to identify where additional margin could be captured. Their initiative to consolidate fragmented SKUs and realign discount structures led to consistent margin expansion across underperforming segments.
• Parker Hannifin undertook a large-scale transformation to move from cost-plus to value-based pricing. As part of its "Win Strategy," the company reviewed pricing across over 800,000 parts to better reflect value delivered to customers. In one division alone, a review of 2,000 SKUs revealed 28% were underpriced. Prices were adjusted—some by up to 60%—leading to significant EBIT uplift. The company also built dedicated pricing teams and trained its commercial staff, embedding pricing as a core business capability and achieving both margin gains and cultural alignment around value.

These industrial case studies prove that value-based pricing is not reserved for tech or luxury brands. Traditional manufacturers with complex product portfolios stand to gain substantially from more strategic pricing.

3. 15 Common Pricing Capability Risks

From field diagnostics and engagements, fifteen recurring capability risks emerge:

• Uncontrolled overrides and inconsistent discounting
• Cost-plus pricing structures disconnected from value
• Lack of real-time margin visibility at deal or SKU level
• No strategic pricing governance or clear accountability
• Sales incentives tied to revenue, not profit
• Manual, error-prone quoting and pricing processes
• Poor integration of cost, freight, and rebate data
• Outdated price architecture with no logical structure
• Frontline teams untrained in value communication
• Renewing legacy customer agreements without review
• Inability to implement or defend price increases
• Undifferentiated pricing across customer segments
• No formal discount logic or delegated authority frameworks
• Poor visibility into rebate profitability and performance metrics
• Lack of pricing KPIs and role-specific accountability

Unchecked, these risks can quietly erode 150–250 basis points in margin annually and undermine pricing credibility across the customer base.

4. 20 Margin Expansion Techniques

Improving pricing requires strategic clarity, structural alignment, and operational discipline. Below are 20 actionable techniques to build capability and expand margin:

Strategic

1. Define pricing ambition and align with customer value propositions
2. Establish executive KPIs for margin and pricing performance
3. Embed pricing governance at C-suite level
4. Publish a formal pricing strategy document
5. Align sales incentives to gross profit, not top-line revenue

Structural
6. Rationalise price architecture by segment, customer, and product
7. Simplify discount and rebate structures for transparency and control
8. Implement delegated authority frameworks for discounting
9. Ensure pricing systems support scalable quote and price list management
10. Establish rules for freight and add-on service pricing

Operational
11. Introduce dashboards for real-time margin visibility and override alerts
12. Train sales, finance, and product teams in pricing maths and value selling
13. Embed SOPs for pricing approval flows and exception management
14. Automate rebate calculations and performance reporting
15. Conduct regular price/margin analysis to flag leakage risks
16. Update and renegotiate customer agreements based on value delivery
17. Standardise quoting tools to reduce price variability
18. Segment customers and tailor pricing by value and cost to serve
19. Run pilot programs to test new pricing structures
20. Monitor pricing outcomes through win/loss reviews and customer feedback

5. The Return on Pricing Investment

A focus on pricing consistently delivers returns of 200–900 basis points of EBIT improvement per $100M of revenue addressed.

• Corporate Stationery Supplier: $6.3M EBIT uplift from modular price architecture
• ASX-Listed Materials Company: 740 bps margin recovery from stock-to-sales pricing
• Medical Supplies Distributor (UK): 800 bps gain by replacing cost-plus with value-based pricing

These gains are achieved without adding headcount, changing products, or raising prices indiscriminately.

6. Conclusion: Pricing as a CEO Agenda

For CEOs and Managing Directors, the message is clear: pricing is no longer a tactical lever delegated to sales or finance. It belongs in the boardroom. A structured approach to pricing capability not only drives immediate financial benefit but also strengthens the organisation's ability to compete, communicate value, and scale profitably.

Unlock your hidden pricing power. It could be the most valuable decision you make this year.

For More Information:

Ron Wood, Managing Director
ronwood@pricinginsight.com.au
www.pricinginsight.com.au

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