Companies can improve at finding the right price

Earning well on a product is not always enough. Danish companies can improve at finding the right price for their products, explains Associate Professor Troels Troelsen from the Department of Operations Management at CBS.
“Pricing is the most underutilised factor in Danish business and industry. Many companies expend considerable resources to add a wide range of qualities and services to their product portfolio to satisfy customers. The amount of effort put into finding the correct pricing, however, is not as great in comparison. Numerous indications show that improving pricing is the shortest path to increasing profits,” concludes Troelsen based findings from “Industriens Pricing Excellence Programme”, a project funded by the Danish Industry Foundation.

The project included 496 companies working with pricing. Half of the companies believe they can improve their ability to price their products. And according to Troelsen, the other half also has the potential to do so. His assessment is that an incorrect price can reduce earnings by at least 25 percent.

On 29 April 2016 the “Set the Right Price” conference will take place at CBS to help businesses improve. Three companies, for example, will talk about working with pricing in practice based on inspiration from the project. At the conference a book will be distributed with concrete tools, such as theoretical models. Companies will also learn about why the price of a product should be set based on more than just covering costs and earning a profit. Instead, customers and their assessment of the product must determine the price. As a result companies should, for instance, spend time asking customers what a product is worth. Only 21.5 percent of the companies that participated in the project said they study what customers are willing to pay and then use that knowledge on their price tags.

Troelsen adds, however, that the uncertainty about the correctness of a price can never be completely removed. This is the case because consumer interests change, competitors are unpredictable and because a company’s own circumstances may change.

The conference at CBS is being held by the Danish Industry Foundation, CBS and the consultancy Incentive. In recent years, it has focused on improving the ability of Danish companies set the right prices. As part of the conference, CBS has contributed with research and created courses on pricing, while Incentive has carried out specific pricing projects at ten Danish companies. Jointly, they also completed a survey of approximately 500 Danish Companies.

Read more about the conference and contact Troels Troelsen if you have any questions. Read Børsen’s articles on the survey, and an invitation to the conference from Danish Industry Foundation.