Gordon McGrath knows he has a problem on his hands. He’s just been hired as the CFO at Luxentra, a global manufacturer of electrical wiring and lighting controls. On the surface, the company appears to be in excellent condition. Luxentra is a leader in its industry with outstanding products and strong sales. The company has also recently undergone an aggressive cost-cutting campaign, which improved both cash flow and profitability. But after digging deeper, Gordon sees some red flags that have him worried:
- Luxentra manages thousands of SKUs but lacks a central methodology for establishing pricing and profitability standards across its large portfolio.
- The sales staff has direct control over pricing, with near unlimited authority to offer discounts to customers.
- Average pricing per product has declined for several years.
- New foreign competitors and new supply chain pressures are looming, potentially threatening the performance gains Luxentra has worked so hard to achieve.
It’s a sobering reality, but Gordon knows strong sales and smart cost cutting will only get Luxentra so far.
Without a comprehensive pricing strategy that properly positions Luxentra in the marketplace and communicates Luxentra’s real value to customers, the company will never achieve its full potential for growth and profitability.
From past experience with successful pricing initiatives at his former company, Gordon knows even small improvements in pricing strategy can translate into significant increases in value — setting Luxentra up for years of growth.
From Gordon’s perspective, it’s time for Luxentra to shift strategies and turn to a strategic pricing management program. But before he can implement changes, he needs to evaluate where the company’s pricing problems originate.
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