Reduce Costs by More Effective Spending

 Is your company as effective as it can be in managing corporate spending?

            According to a recent Aberdeen Group research study, an average company can save 11% of their annual spend with better spending management. That is $11 million in savings for every $100 million in spend. 

            However, please don’t think that controlling these costs the “traditional way” will result in achieving these savings. History has proven it will not. That is because traditional approaches have usually ended in less than satisfactory results. This is because:

1.    A limited percentage of the potential savings were usually achieved. Even many of the achieved saving did not last very long. History has demonstrated that in many of these situations, the costs reappear because many of these reviews addressed the symptoms and did not address the causes; and

2.    Relying on a “new system” alone to solve your problem. It is not the only answer. Implementing a system alone is not the total answer to this very complex management issue. For example, a recent study by IBM interviewed 400 supply chain executives in 25 countries. 70% of these executives said they were “overwhelmed by data”. To effectively manage the corporate spend, they need “to make sense of the information” in order to take any corrective.

Does your Spending Management Strategy (SMS) support the strategic objectives of your business? Do your spending policies & procedures support your Spending Management Strategy? Are they all maximizing your profits?

Our firm’s Spending Effectiveness Diagnostic Review reviews our client’s present spending management strategy, policies, and procedures to identify opportunities for cost savings. 

Examples of cost savings that have been identified in past diagnostic reviews include:

1.    Vendor consolidation opportunities;

2.    Identifying overcharges & overpayments;

3.    Fraud detection & regulatory compliance;

4.    “Sacred Cow” spending;

5.    Product & part rationalization;

6.    Risk reduction opportunities.

If you would like to learn more about our work in this area, or have any questions about any of the projects that we do to help our clients increase revenue, reduce costs, or improve competitive advantage, please contact me.

Joe Bonocore

jbonocore@bonocore.com

Are Your Pricing Strategies Maximizing Your Profits?

Are Your Pricing Strategies Maximizing Your Profits?

    Are your pricing strategies maximizing your profits and positioning you to gain market share or…… does your company employ an inflexible “one size fits all pricing strategy” for all your products and services?

    Have you developed a variety of price strategies tailored to meet the objectives of each of your products and services?

      The present business environment requires that you critically rethink your present pricing strategy continuously to be competitive.

However, many businesses take an educated guess to determine their prices. This guess is determined by estimating the cost of delivering the product or service and adding a targeted mark-up. The result is measured against the expected competitor’s pricing and adjustments are usually made to be competitive. Once a price is set, critical evaluations to determine appropriateness are usually few. In many cases, price variations are very large with no clear explanations given or understood.

Many of the most profitable businesses are very deliberate about developing and periodically evaluating and updating their pricing strategy. They do their homework, and make pricing changes quickly when necessary. They are continually evaluating their pricing strategies and practices.

 

Have you recently evaluated, updated and modified your pricing strategies? 

Which of the following pricing strategies is best for each of your products and services? 

1.    Be the low price leader and sell what are essentially commodities;

2.    Be the industry service leader;

3.    Establish  first-mover advantage and deliberately price low in order to penetrate the market quickly;

4.    Price high to attract the early adopters at a premium profit;

5.    Bundle several products in order to make a greater profit; or

6.    Obtain premium price for a new or exclusive product that you can market. 

As previously mentioned, a company’s pricing strategies should be developed with two key strategic goals in mind:  

1.   Maximizing profits. The most profitable companies usually follow a very simple vision in developing a good pricing strategy. The goal is to maximize as much money out of each product or service sale as possible, even though fewer customers may make a purchase. They may even end up with fewer customers. But then dealing with a lot more customers can also add to your operating problems. For example, a fair number of companies have proven that making more profit off each customer can increase profits even with fewer customers.
2. Gaining market share. Another key strategy is to price your products or services lower to gain market share. For example, a pricing strategy for an online business can be to maximize the number of subscribers, even though their margins will be lower on each customer. The objective would be to gain additional profit by offering these subscribers additional services such as web hosting and e-commerce after they are customers.

 In developing a pricing strategy or evaluating the effectiveness of your present pricing strategies, we recommend benchmarking against the “Strategic Pricing Three Cs”. They are how pricing compares to meeting the customer’s expectations related competition. This is measured by:

1.  Customer Demand: Customer demand is a crucial factor in determining appropriate price. Demand is driven by factors such as customer need, customer ability & willingness to pay the amount for such a service, and the availability of other products at a different price, etc. Are you aware of your products or value added features where customers are willing to pay a higher price.
2. .Cost of Delivery:  Cost of delivery is another critical factor in your pricing. Do you know the cost of delivery of each of your products & services? Can you be more competitive in certain product or service areas where your cost or delivery may be lower than you think?
3. Competition: Do you know enough about your competition’s pricing? Analysis has shown that many companies could do a much better job understanding the competition and especially the competitive pricing environment.

 Please let us know if you would like to discuss how to we work with our clients in evaluating the effectiveness of their strategic pricing strategies & practices. We would be happy to help in any way we can.

Joe Bonocore

jbonocore@bonocore.com