Pricing is probably the most under-rated weapon in the marketer’s armoury. But analysis from the Wharton Business School, based on original research by McKinsey, points to the unexpected Power of Pricing.
Using data from Fortune 500 companies in the US, the analysis sought to identify the most effective driver of profitability. Four key profit levers were evaluated;
- Reduce fixed costs
- Increase sales
- Reduce variable costs
- Increase prices
For each lever, the impact on profitability was calculated based on a 1% change in each factor. The results were impressive and definitive. They show that if a company reduces its fixed costs by 1%, it can expect an increase in profitability of 2.5% on average. Similarly, if a company increases its sales by 1%, it can expect a 3.3% increase in profitability. A 1% reduction in variable costs yields a 6.5% increase in profitability. But a 1% increase in pricing gives a 10.3% increase in profitability.
So pricing is by far the most powerful driver of profitability of any business.
MOTOPRIX understands this point and understands the critical role that accurate data plays in enabling our customers to make informed decisions which help to maximise their profitability. Use MOTOPRIX to give your business an edge.