Talk about a pendulum shift. In the 1990s, it was all about rampant revenue growth. Then as the economy took a dive in the early part of this decade, manufacturers regrouped and put their energies into cost containment. With industrial growth now making a moderate resurgence, manufacturers are refocusing their efforts once again. This time, the emphasis is on growth, but with an eye toward profitability.

Increasing sales, lowering costs, or squeezing suppliers can do only so much to pad the bottom line, however. That's why a number of cutting-edge manufacturers are endeavoring to get smarter about how they price their products. Armed with new end-to-end business processes and an emerging class of software -- dubbed price management -- manufacturers of all types are starting to gauge the price elasticity for their products, discover and analyze price leakages, and enforce and manage pricing policies with the goal of becoming more adept at contracts and negotiations.

Investing in new price management processes and technology can deliver dramatic, quantifiable results in fairly short order, meaning a matter of months, not years. Financial executives across all industries admit that they routinely leave between 1% and 5% of margin on the table because when pricing products they often lack visibility into such factors as volume terms and raw material costs, and because they have no way to enforce standard pricing practices. By identifying and then eliminating unprofitable business, manufacturers can bolster the bottom line. For example, inserting just 1% of margin back into the equation can increase a manufacturer's earnings by as much as 20%, notes Colin Masson, AMR's research director for supply network operations.

"If, at the end of the day, sales people or customer representatives are giving away margin in the form of discounts and rebates or taking orders for custom specs that can't be manufactured efficiently, there's a problem," Masson explains. "This category is about bringing that under control."

Price management software aims for control by creating end-to-end processes and putting visibility around pricing so that everyone -- from sales reps to logistics and operations managers -- is on the same page. Today, setting prices and negotiating and enforcing against those price points is done mostly in an ad-hoc manner, typically with spreadsheets and email. And while many functions in a typical manufacturing enterprise have an impact on pricing -- including sales, logistics, manufacturing, and procurement -- these groups often operate in vacuums when it comes to pricing products because, experts say, there's often no system or process in place for sharing price-related information.

"In manufacturing, nine times out of 10, the price that gets set for a particular product or deal is not a list price, but rather a custom price that reflects the fact there are multiple exceptions that exist for that deal with that particular customer for a specific product on a particular day," explains Eric Hills, vice president of marketing for price-management software provider Zilliant (Austin, TX). "These prices are maintained by sales reps and their assistants in a very distributed, uncontrolled fashion. When things in the marketplace change or cost drivers in a product change, it's difficult to figure out how to pass those costs on in a systematic way."

Price management initiatives often require significant change management and reengineering efforts. Manufacturers will need to map out their business processes and create workflows around pricing, and they'll have to do so with a multidisciplinary view so that all the disparate factors impacting price are accounted for in the process. Reengineering involves creating standard pricing processes so important information is shared beyond individual functional groups, changing incentive policies in order to encourage sales people to price products using the right processes and information and aligning metrics and incentives across functions so that everyone is on the same pricing page.

"Price management faces a lot of the same challenges as early ERP," Masson says. "Companies will have to go about reengineering, but in most cases, the process is broken so it's really an engineering process for price management."

The Science of Pricing

Price management software, meanwhile, is still a long way from mainstream. Currently, a handful of niche players, including Zilliant Inc. and Metreo Inc. and Vendavo Inc., both of Palo Alto, CA, are offering solutions. But the software is in use at less than 3% of manufacturers, according to a survey by AMR Research Inc. (Boston).