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1.7 Summary

Pricing is critical to a company's success, and realizing a slightly better price overall across all transactions has a tremendous impact on the bottom line for any company. As such, improving prices and preventing price erosion in transactions or contracts should be the first priority for a company seeking to improve its profits.

However, many senior managers feel they have no control on prices because they cannot control external factors such as escalating raw material prices or tightening customer budgets. They need to realize that internal issues impact realized prices as well, and they can control these.

These internal issues pertain to pricing-related challenges that cause "defects" in terms of transaction prices being excessively low (or excessively high). These challenges stem from (1) pricing spanning multiple functions and therefore being subject to interfunctional conflict, (2) excessive emphasis on customer responsiveness, sidestepping internal consensus-building and analysis, (3) continual external and internal change, including ad-hoc processes, and (4) management-by-gut-feel that is different for different individuals in the absence of data-driven fact-based analyses.

The heart of the problem is the absence of well-defined processes or the absence of functioning controls even if the processes are well designed and well intentioned. Six Sigma is an approach that has done wonders for manufacturing and for services in improving processes to reduce defects.

The real purpose of Six Sigma Pricing is to help the CEO develop a shared understanding and rationale for improved control and thus manage change to improved pricing processes.

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