What are the stages of excellence in pricing?

Pricing capability develops through five stages: lagging, basic, competent, advanced and leading. The stages run across five dimensions: strategy and value foundations, price setting, price getting, governance, and data and performance. Price getting is discount control.

Most businesses sit one stage above the bottom. Prices follow some rules, but discounts leak. Nobody can state the pocket price, and the sales incentive rewards giving margin away.

Roughly a full percentage point of price falls straight to operating profit. So moving even one stage right is typically worth several points of profit. A 1% improvement in realised price is worth on the order of 7% of operating profit for a typical business. In process industries it is around double that.

The five stages, in pricing terms

• Lagging. Prices come from a formula, cost-plus or last year plus a percentage, and nobody has said what pricing is for. Discounts are approved by whoever the salesperson asks. Nobody can say what any customer actually pays after rebates and terms.
• Basic. A price list and a discount policy exist, but anything urgent bypasses the policy. Price increases are announced, and nobody measures how much sticks.
• Competent. Discount authorities are defined and mostly followed. A list-to-pocket waterfall exists for major customers. Increases are measured account by account.
• Advanced. Prices are set from customer value, with cost as the floor. Guidance reaches sales at the point of quote. Pocket margin and override rates sit on a dashboard someone reads.
• Leading. Pricing is a recognised capability. Segmented guidance wins deals at better margins without policing. Repricing moves faster than competitors can react.

The five dimensions a pricing assessment covers

1. Strategy & value foundations: is there a pricing strategy, is customer value quantified, is competitor pricing known?
2. Price setting & architecture: how list prices, structures, increases and new-offer prices are decided, and how fast decisions reach the market.
3. Price getting: the waterfall from list to pocket price, discount authority, rebates that pay for behaviour, and deal guidance.
4. Governance & organisation: who owns pricing, how decisions are made, and whether sales incentives point the same way as the strategy.
5. Data, analytics & performance: one source of truth, standard analyses, tested price changes, and KPIs beyond average selling price.

How is pricing maturity measured?

Pricing maturity is measured one practice at a time. A Stages of Excellence assessment asks about 25 to 30 pricing practices across the five dimensions. For each practice, the respondent picks the one of five sentences that describes the business today, from the weakest practice to the strongest. The answers roll up into a stage for each dimension.

What the stages are worth

The most consistent finding across nearly three decades of pricing engagements: the money is in the early moves. Moving from the bottom of the scale to the middle means decoding the price waterfall. It also means aligning prices to cost-to-serve and removing incentives that trade margin for volume. That move routinely recovers margin measured in whole points. It needs discipline rather than software.

The cautionary case is the reverse move: cutting price into inelastic demand. There, a cut can require volume growth of 100% or more to break even.

See where your business stands: the pricing check takes about ten minutes.