The impact of sales price (5)

The price is one of the offer’s most visible and sensitive parts. It is the outcome of an effort that begins with the design or choice of the sales object and extends to after-sales service.

On a scale from 0 to 10, the price relevance to business activity is ten because it is both a booster and a destroyer of good results.

Philip Kotler, the renowned marketing author, even declared that price is the main element of the marketing mix. This statement is, obviously, an exaggeration, as price only becomes so relevant when correctly associated with other marketing variables, such as the product, distribution, and sales team.

Still, it is crucial. To demonstrate it, Michael Marn and Robert Rosiello, based on the results of 2,463 companies surveyed, created the graph below showing the effect of a 1% improvement on the main components of profit—price, variable cost, quantity, and fixed cost—in the offerer’s operating result.

Explaining it, they show that a 1% increase in prices would raise profits by 11.1%; a 1% reduction in variable costs would bring a 7.8% increase in profits; a 1% increase in quantity sold would add 3.3% more profit; and a 1% decrease in fixed costs would make the same result to grow 2.3%.

Reinforcing that data, McKinsey consultancy, researching 1,200 large companies, identified that an increase of one percentage point in their average prices would provide an 8.7% raise in their operating profits. In other words, in these companies, increasing their price, for example, from $10.00 to $10.10, would increase their profit from $10,000,000.00 to $10,870,000.00.

Despite this relevance, price is such a complex variable, so interconnected, with so many nuances, that for decades, even with the notable advances in administration science and marketing research, few publications were made about it. This subject was even outside the curricula of many business schools.

However, many good works on this theme exist today, even at the Internet.

C. L. Eckhard, author of Pricing in Agribusiness: setting and managing prices for better sales margins.