Profit-Based Pricing: Laying The Foundation For Your Pricing Strategy By Steven R. Anderson, Acorn Systems

Over the past 10 years, there has been a lot of discussion about the importance of good pricing strategy. In the 1990's, companies implemented value-based pricing by quantifying the value of their products and services to their customers. A few years later, price waterfalls were the rage, showing companies the impact of freight, commissions, rebates, and other adjustments. Around that time, the advent of data warehouses enabled price matrices to be an effective tool. Companies could differentiate their pricing around unique micro segments. Since 2000, companies have begun to leverage mathematical algorithms to predict demand patterns. These solutions have helped companies make pricing decisions more efficiently. But have these solutions made them more profitable? In other words, are their pricing programs profit-based?

Revenue Management is Not Enough
In 2002, Clairmont Semiconductor had one simple vision – leverage revenue management to reset the pricing of their product portfolio so that revenue was optimized. The basis of thought was that market demand is extremely elastic for DRAM and other commodity semiconductor chips. If Clairmont could better understand the dynamic slope and shape of that demand curve over time, they could preempt competition to capture a sizable chunk of market revenue.

Steven Anderson is Chairman and Founder of Acorn Systems, a profit improvement company that leverages its proprietary software and consulting services to help boost the operating profits of their clients. In 1996, Mr. Anderson founded Acorn to assist turnarounds and buy-outs through its unique approach to Activity-Based Costing that he pioneered (now called Time-Driven ABC). After a successful start that more than doubled the profits of the first five clients, he converted the methodology into a software solution that could assist a broader audience. Today, Acorn has over 150 clients in the retail, financial service, consumer packaged goods, and distribution sector. The company has added over $15 billion to the market capitalization of its clients. Mr. Anderson is currently involved with helping Acorn further penetrate the private equity space. He has written over 20 articles, white papers and case studies on M&A Strategies, Supply Chain Management, Customer Profitability, Product Management, Lean Solutions, and IT Value Management.