For a long time now, the practice of product pricing has involved more art than science, with product managers and sales professionals governed mostly by what "felt right." In recent years, however, science has started to gain the upper hand, and the sun may be setting on the era of "pricing by the gut."
In manufacturers' never-ending quest to turn over every stone that may yield better profits and allay the pressures of a bustling global marketplace, the list of strategies is long and growing: business-spanning ERP systems, lean manufacturing, collaborative networks that tie in partners across the supply chain, and outsourced labor, to name a few. An item that only recently made the list is one that seems the most obvious, at least in retrospect: pricing science.
Few variables have a more direct impact on a company's profit than the price at which it sells its products. Traditionally, executives and sales managers viewed the pricing for their products as something of a free-for-all. Since pricing depended on so many unpredictable moving parts, it was best left in the hands of the sales team — the folks with the best read on the prospective customer.
And yet, variables that may be too numerous and complex for the average person to process and analyze are a cinch for today's computer processors, working in conjunction with the right software-based algorithms. And so with the dawn of the new millennium came the dawn of a new niche in enterprise applications — pricing management.