Paul’s Pricing Dictionary: Pricing Audit


Pricing Audit, n.

Internal Audit’s favorite choice of audit which they do as often as they can because it’s the most interesting thing they can find to audit. It’s an area of the business where they know they least, can learn the most, and it’s actually interesting.

Having said that, I’ve been totally underwhelmed by Pricing Audits either completely missing what’s important – such as critical business processes which weren’t being performed, key metrics not identified let alone measured, and incomplete pricing strategies etc – or avoiding difficult issues, like breaking up audit finds and spreading them across the organization because they didn’t want to appear to be “victimizing” one particularly delinquent group.

If you’re relying on a Pricing Audit by your Internal Audit to identify your pricing issues, don’t. Get someone in who knows something about pricing. Call 281-782-9821.

Paul’s Pricing Dictionary: Why You Might Not Have Uncompetitive Product Costs After All


Uncompetitive Product Costs,

Have you ever thought that you might have competitive product costs after all, and that it’s your pricing that sucks? Just saying.

Maybe the way your bid team analyzes the deal is different to the competition? Maybe the scope of their analysis is different? Maybe their criteria for what is acceptable is different? Maybe they know how to structure deals better than you do?

Maybe you haven’t structured the deal correctly? Maybe you need to re-structure the deal.

How is sales comp impacting this? Sales management? Sales behavior?

Maybe you need to get a pricing expert in? Someone who can give you a better idea of whether you are cost uncompetitive or not.


Paul’s Pricing Dictionary: Uncompetitive Product Costs


Uncompetitive Product Costs,

Have you ever thought that you might have competitive product costs after all, and that it’s your pricing that sucks? Just saying.

Paul’s Pricing Dictionary: New Product Insanity (NPI)


New Product Insanity, n.

Thinking that your next New Product will fix all your business problems when it has never done so in the past.

Paul’s Pricing Dictionary: Meta Price Analysis

Keyboard with hot key for price analysisMeta Price Analysis, n.

Analysis which determines how much and what type of price analysis needs to be done.

It’s not how much analysis you do that matters; it’s how little, quick, repeatable and intelligible the analysis is, and most importantly much insight you create in the process:

Meta Price Analysis Value = f {Insight, Speed, Repeatability, Intelligibility / Effort}

Paul’s Pricing Dictionary: Big Data

P 75x75Big Data, n. pl. but s. or pl. in constr., often attrib.

It doesn’t matter how big your data is, it’s how much insight you get from it that counts.


Paul’s Pricing Dictionary: Cost-plus Pricing (Part 2)

P 75x75Cost-plus pricing, n. gerund, delusional.

Going beyond Nagle & Holden … cost-plus prices:

– miss psychological price points

– effectively destabilize the business because they’re set with no perception of customer value in mind (if the prices are set irrationally, customer behavior will be irrational)

– assume that all the costs are cost-competitive, right? Wrong.

– temporarily shield uncompetitive procurement/costing/product management

– prevent the necessary and creative tension between pricing (“these products are not cost competitive!”) and costing/procurement (“oh yes they are!”) to help improve the business as whole

– are very apparent to professional purchasers & purchasing depts. and can be exploited accordingly

– would be severely lagged and ineffective when used for life-cycle and X-rate management

– can be easily gamed by the competition: it’s very obvious when a company doesn’t set its price competitively

– wait, don’t tell me that with cost-plus pricing you don’t even bother with competitive analysis either ….?

Any more?

Paul’s Pricing Dictionary: Cost-plus Pricing

P 75x75Cost-plus pricing, n. gerund, delusional.



  1. From “The Strategy & Tactics of Pricing” Nagle & Holden, 2nd edition (1987 & 1995):

Cost-plus Pricing:

– “carries an aura of financial prudence”

– “blueprint for mediocre financial performance”

– “impossible to determine product’s cost before a price has been set”

cost = ƒ(volume) = ƒ(price) but if price = ƒ(cost) then you create an infinite loop which can will lead to the wrong solution (“flawed circularity” or – speaking in engineering rather than tabloid terms – catastrophic)

– creates a catastrophic cycle of a decline when competition increases: volumes decline, then overheads allocated to the products will increase leading to increased prices, which in turn will drive volumes down, increases overheads …. etc

2. Cost-plus pricing assumes costs are accurate, which is rarely the case, and, in reality, there is no good way of defining – let alone allocating – overheads:

cost = ƒ(allocations) = ƒ(volume) = ƒ(price), and again, if price = ƒ(cost) then you create an infinite loop which can will lead to the wrong solution (“flawed circularity” or – again, speaking in engineering rather than tabloid terms – catastrophic)

3. Sub-optimized pricing. Every price created by cost-plus pricing is either too high or too low. Every price could and should be improved.


Paul’s Pricing Dictionary: Folgers Coffee

P 75x75Folgers Coffee, n. apocryphal, euphemism.

“You don’t want to end up like a Product Manager at Folgers Coffee”. As a way of encouraging and warning Product Managers that their role in not only in resisting commoditization – but also not being enablers of it – was vital, I would often relay what I presumed had happened at Folgers with Product Managers there stumbling around the office and mumbling into their coffee:

“Well, it’s just a commodity” while overlooking a thriving Starbucks …. Well here’s a view of Folgers HQ and the Starbucks across the street that they may well have looked over … and over-looked:


View of the Starbucks opposite Folgers Coffee’s old HQ in San Francisco.

Part 1 of a series of escalations about commodities.




Paul’s Pricing Dictionary: Remuneration

P 75x75Remuneration, n. A euphemism for kickbacks, particularly in Big Pharma.

Check out what Big Pharma is giving your doctor for  kickbacks. Find Your Doctor’s Payments out of the $7.52 billion/year that gets  kicked-back to doctors in the USA.

The first doctor I mentioned this to was fascinated that (a) I knew how much he was getting – which was basically only $500-$1000/year in sandwiches for the people in the office – but he was really excited to find out (b) how much his ex-wife who was a specialist in …. was getting, and he explained exactly why for medical reasons she’d be getting a ton and indeed she was.

Now, another doctor I use got $18,156 in 2013 in mainly “consultancy” from one supplier; the $44,644 in 2014 followed by only $373 in 2015. It makes you wonder what is going on …. and should I be concerned that my doctor’s kickbacks are going down?!? Does it affect the treatment he provides to me? … how much of this is reflected in what I pay my doctor for? Do I pay less or more because of the kickback? Do all patients have the same adjustment to their payments because of his kickbacks?

Another doctor of mine received little in 2013 & 2014 and all of a sudden gets $33K for Associated Research Funding. Am I part of the research? Before I accept any treatment or fulfill a prescription I presumably now need to check to see if his OEM is the company which paid him the $33K. So these kickbacks are certainly doing a good job undermining trust in one’s physicians.

In case you’re wondering why this is relevant to pricing, well, a lot of pricing roles in Big Pharma also include  kickback management: Director, Global Pricing & Market Access (Reimbursement Director) – Oncology for Amgen is just one example.

The length of the job description is interesting. To paraphrase Spike Milligan, it should have just said “Director, Pricing & Kickbacks” and saved us (me) the effort of reading it.

What’s the alternative? How about no kick-backs and lower prices?



error: Content is protected !!