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Pricing

We help clients significantly increase and sustain profitability by building capabilities for superior pricing and margin management.

Small changes in average price can translate into huge changes in operating profit—to the benefit of a company when average price goes up, and to its detriment when average price goes down. We believe that sustained above-market growth comes when granular pricing analytics deliver credible insights with easy-to-use tools to the front lines. While we work with our clients to develop effective pricing strategies and unlock pricing opportunities, the majority of our focus is spent on building the right set of capabilities and management conviction to implement and sustain the gains. We take a “strategy before structure” approach by identifying what needs to be done and then working with the client to build out the tools, people, and systems to do it.

With this approach, our clients have improved their return on sales by 2 to 7 percentage points or more within 1 year, and sustained that growth over the long term.

Our “fully loaded” service incorporates a complete package of skills and assets to support clients with any pricing issue: proprietary benchmarking and data-driven insights, enterprise quality software that combines McKinsey knowledge and client data to provide tools for frontline managers, proprietary training approaches and e-learning tools to support long-term implementation, big data and advanced analytic models and tools to capture and sustain the gains.

What we do

We help clients turn pricing into a sustainable profit engine by:

  • Discovering the real value of each product for each customer segment in order to set the best prices. We develop tools that process big data to uncover pricing opportunities at the most granular levels to identify patterns and size opportunities. That includes identifying transaction level insights on sources of leakage to help clients make rapid changes that “ring the cash register” quickly.
  • Designing market strategies based on a deep understanding of how pricing is connected to the business’ goals and what competitive pressures are affecting the market.
  • Delivering prices to the marketplace through an infrastructure that incorporates processes, organizations, systems and tools, and performance-management approaches that are relevant to the business. The greatest tool in the world won’t help a company that doesn’t have the people and processes to act on what the tool provides. For this reason, we take special care to connect all the elements of the pricing function with the business and the sales people on the front lines. We provide the training, tools, and capabilities for our clients so they can sustain their growth over the long term. We have established capability-building centers, for example, for on-site training, and have a dedicated implementation group that works side by side with our clients to help put recommendations and programs into the field.

Examples of our work

  • trained 200 executives on how to deliver pricing impact, size opportunities, and use metrics to capture an 11 percent return on sales across the business
  • helped an industrial supplier standardize discount terms and conditions, and increase price on low-volume products, leading to a 5 to 7 percent return on sales
  • created $400+ million of incremental operating income by developing tailored price targets across brands, geographies, channels, and packages for a consumer-goods company
  • increased a retail bank’s product revenues by 14 percent by adjusting its approach to fees and waivers
  • worked with a consumer-goods manufacturer to increase frontline management of the price “pocketed” from each transaction, leading to an 8 percent increase in return on sales over 3 years
  • helped a railroad establish a new competitor-price intelligence system that provided a more rigorous, market-by-market analysis of each transaction. These insights allowed the client to increase average price per transaction, leading to a $600 million increase in return on sales

Featured capabilities

Periscope platform combines world-class intellectual property, prescriptive analytics and cloud-based tools with expert support and training to drive revenue growth and improve decision making. By uncovering actionable insights and helping companies to optimize their Marketing and Sales operations, Periscope delivers a 2–7 percent return on sales.

Pricing Solutions built on Periscope Platform helps companies to build and deliver sustainable, dynamic, and competitive pricing capabilities across their organization. It also provides end-to-end promotions management by analyzing historic promotions, conducting micro-marketing experiments, and simulating possible promotion tactics.

  • Pricing solutions can help companies create 1.5% margin uplift with optimized pricing across channels, customers and regions and enables 10-15% trade spend effectiveness

The Price Advantage was written by three preeminent pricing experts at McKinsey. This book provides executives with a leading-edge yet practical guide to identifying, capturing, and sustaining pricing gains.

Featured experts

Manish Chopra

Senior Partner, New York

Walter Baker

Partner, Atlanta

Impact Story

Capturing the full value of innovation

Focusing on customer value helped a network infrastructure provider align prices with the true benefits created for customers.

Related Insights

Article

Pricing in retail: Setting strategy

– This article—our first in a series on pricing in retail—focuses on key value categories (KVCs) and key value items (KVIs) as a core part of price strategy in today’s digital retail environment.