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INTRODUCTION
By now, most business executives have read the headlines: 'Ron Johnson, marketing guru and former Apple leader fired after calamitous 17 month run at JC Penney. Shoppers balk at pricing strategy. Sales plummet 26 per cent and revenue declines $4 billion, producing an annual loss nearing $1 billion. JC Penney bleeding cash and seeking rescue financing'.
How could such an esteemed figure with a storied retail background and privileged educational pedigree get it so wrong? Before Johnson's dismissal, some financial analysts insisted that Ron's strategy was 'sound', and just needed more time. Other journalists speculated that the brand was too far gone - 'tried to go too far, too fast' - or that Johnson lacked the extensive resources of Apple and Target. Much closer to the truth, pricing experts will tell you that Mr Johnson appeared to lack an appreciation of the complexities and nuances of implementing an appropriate enterprise pricing strategy.
If a financial meltdown the size of JC Penney (JCP)'s could unfold in spite of the intense shareholder dialog, could your company be next? Whether you are running a 'mom and pop' operation or a Fortune 50 company, the reality is that most businesses have no higher pricing IQ than JCP's. While the JCP situation was self-induced, all companies are exposed to exogenous factors such as disruptive technology, economic shocks or simply rogue competition, which can lead to the same level of turmoil that crippled JCP.
Over the past 20 years, I have had the opportunity to talk to several well-known companies, strategy firms, revenue management consultancies, and academics about the state of pricing and revenue management (aka P&RM) in corporations around the globe. Surprisingly, the pricing function is not regularly viewed as a core foundational competency, much less a source for competitive advantage. I have struggled to explain this pricing blind spot that exists in boardrooms across the globe, as after all 'Price' is pretty elementary to corporate results:
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So, with 'Price' being one of the three elementary variables driving profits, why is P&RM so overlooked?
CORPORATE INERTIA
During profitable periods companies often adopt the mantra 'Why tinker if it's not broken?' I have observed that many companies operating in profitable growth industries are reluctant to embark...