The Power of One Percent

​The Power of Pricing - why manufacturers should focus on price control

In the highly dynamic and competitive manufacturing industry, Pricing stands out by far as the most powerful tool for maximizing profit margins. Many manufacturing companies put a high focus in difficult time on various measures cost-cutting and cost-avoidance measures, while sometimes ignoring the unique position that price management holds in ensuring the financial sustainability of a business.

The McKinsey exhibit „The Power of One“ famously illustrates this:
Pricing right is the fastest and most effective way for managers to increase profits … a price rise of 1 percent would generate an 8 percent increase in operating profits —an impact nearly 50 percent greater than that of a 1 percent fall in variable costs such as materials and direct labor and more than three times greater than the impact of a 1 percent increase in volume.

Logically, manufacturing organisations should put 50 percent higher focus on Price optimisation and control rather than the typical pure cost reduction approaches.

The pricing structures for Tier1+ manufacturing suppliers are notoriously complex, with individual price agreements for hundreds of customers over thousands of part numbers. Complicated discounts tied to long-term agreements, volume based amortization amounts, numerous adders and subtractors, index based pricing for raw material commodities and foreign exchange components, all contribute to a huge risk for margin leakage.

A sound approach to effective price management and control starts with a state-of-the-art solution to maintain, analyse, govern, automate & intelligently manage pricing. Organisations using such digital tools have seen immediate benefits and measurable effects to their top and bottom-lines:

  • 360 degree management overview: allowing real-time monitoring of prices, price risks and price impacts in all dimensions to drive transparency and ensure fast actions.

  • Pricing intelligence: bringing data-based insights across products, regions and customers to maximise pricing.

  • Accurate planning & forecasting: ensuring correct business strategies and decisions based on the best data quality.

  • Process governance: implementing standard procedures and relevant controls on creation or updating of customer prices, especially discounts.

  • Risk evaluation: identifying and quantifying risk embedded in pricing structures, such as index based commodities or foreign currencies.

  • Automation & Intelligence: driving maximum user efficiency while at the same time reducing errors and pricing mistakes. Exploiting intelligence to make smarter, better decisions.

Reach out to us to learn about a state-of-the-art Pricing Management solution specifically engineered for automotive and manufacturing suppliers.

Xotigo bietet digitale Softwarelösungen für Automobilzuliefer-, Zulieferer der Luft-und Raumfahrt sowie Unternehmen der Fertigungsindustrie. Die Lösungen von Xotigo decken die gesamten Geschäftsprozesse von Vertriebsteams ab, erhöhen die Produktivität, verbessern die Datentransparenz und liefern intelligente Erkenntnisse, die zu höheren Umsätzen und Gewinnspannen führen.


+49 151 15693020

+1 (248) 9330814 0