Maximize margins with pricing and promotions

Price wars have broken out in consumer industries around the world. It’s no secret that retailers such as ALDI, Amazon and Walmart have used price to position themselves against traditional competitors in their markets, pinching margins all around. Financial asset managers have been out-price-cutting one another in exchange-traded funds in a bid to gain market share. Major US telecommunications carriers now compete fiercely on price as they try to win new customers. And airlines are gearing up for a price war on trans-Atlantic routes as some low-cost carriers plan service between the US and Europe.

These companies are reducing prices because they believe that will boost their perceived value to consumers, who implicitly weigh price against product features and benefits in their purchase decisions. As pressure intensifies to reduce prices, either by cutting the list price or offering a discount, companies may act hastily, without the same rigor they apply to investments elsewhere, such as capital deployment or product enhancements. Yet, changing prices can have an even greater effect on company financials.