Understanding Where Pricing Value Is Created and Lost

Understanding Where Pricing Value Is Created and Lost

Every organization creates and destroys pricing value simultaneously. The question is whether it knows where each is happening.

Pricing creates value when intent translates cleanly into execution. When the strategy is clear, the design is sound, governance protects the intent, execution is accurate, transactions follow the rules, and performance is monitored and improved, the organization captures the value its pricing was designed to deliver.

Pricing destroys value when any of these connections break. When intent is reinterpreted, when execution introduces errors, when governance is bypassed, when transactions erode discipline, or when problems persist because they are never detected or addressed.

In most organizations, both are happening at the same time, across different products, customers, channels, and regions. The net result depends on which force is stronger. Understanding where value is created and where it is lost is the essential diagnostic that every pricing improvement effort should begin with.

How Value Leaks

Pricing value leaks through mechanisms that are individually small but collectively significant.

The most visible form of leakage is discount erosion. Over time, the average discount depth tends to increase as sales teams anchor to previous concessions and customers expect progressively better terms. What begins as a competitive accommodation becomes a baseline expectation. Without structured monitoring, this drift is invisible until it surfaces in margin analysis.

A second form of leakage is exception proliferation. Every organization needs exceptions. But when exceptions are not tracked, justified, or bounded, they multiply. Each exception creates a precedent that justifies the next one. Over several quarters, the volume of exceptions can represent a material percentage of transactions, each one eroding the pricing structure that was designed to prevent exactly this outcome.

A third form of leakage is execution error. Prices that are approved at one level but entered into systems at another. Effective dates that are missed. Customer assignments that are incorrect. These errors are not caused by negligence. They are caused by manual processes and fragmented systems that introduce risk at every handoff.

A fourth form of leakage is structural misalignment. This occurs when pricing structures no longer reflect market realities. Tiers that were designed for a different customer mix. Discount schedules that were set against outdated competitive benchmarks. Incentive programs that interact in unintended ways. Structural leakage is the hardest to detect because it is embedded in the design rather than in the execution.

Where Value Is Created

Understanding where value leaks is necessary but not sufficient. Organizations also need to understand where pricing creates value, so they can protect and strengthen those mechanisms.

Value is created when pricing reflects genuine differentiation. When prices are calibrated to the value customers actually receive, and when that calibration is maintained across transactions, the organization captures the full return on its product and service investments.

Value is created when governance prevents erosion. Every exception that is caught, every unauthorized discount that is blocked, every out of policy deal that is escalated represents value that would otherwise have been given away. Governance is not just a control mechanism. It is a value protection mechanism.

Value is created when execution is accurate. When the price that was approved is the price that is deployed, the organization avoids the downstream costs of correction, rework, and customer renegotiation. Accurate execution is invisible when it works, but its absence is extremely expensive.

Value is created when learning compounds. Every improvement cycle that refines a pricing rule, tightens a guardrail, or eliminates a recurring error produces value that persists beyond the current period. Over time, these improvements accumulate into a pricing capability that performs better each year.

Diagnosing Your Organization

Diagnosing where value is created and lost requires asking specific questions at each step of the pricing workflow.

At strategy and intent, ask whether trade offs are resolved explicitly or whether they are left for downstream teams to interpret. When trade offs are ambiguous, inconsistent behavior is inevitable.

At design and modeling, ask whether pricing structures reflect current market conditions or whether they were inherited from a previous era. Outdated structures produce structural leakage that no amount of governance can prevent.

At governance, ask whether exception rates are stable, increasing, or unknown. Rising exception rates signal governance erosion. Unknown exception rates signal that governance is not being measured.

At execution, ask whether approved pricing matches deployed pricing, and how you would know if it did not. If the answer involves manual reconciliation, the risk of execution error is high.

At transactional application, ask whether the average discount is deepening over time and whether that deepening is intentional. Unintentional discount drift is one of the most common and costly forms of leakage.

At monitoring, ask whether the organization can see pricing performance in near real time or only after the fact. Delayed visibility delays intervention.

At learning, ask whether the same issues recur from cycle to cycle. Recurring issues indicate that learning is not being converted into action.

These questions do not require advanced analytics to answer. They require honest assessment and the willingness to look at how pricing actually works, not just how it is supposed to work.

From Diagnosis to Action

The value of understanding where pricing value is created and lost is practical. It tells the organization where to focus.

Not every source of leakage is equally important. Some leaks are large and addressable. Others are small and structural. The goal is to prioritize the leaks that are both material and fixable, and to address them in sequence rather than all at once.

Similarly, not every source of value creation is equally secure. Some value creation mechanisms are robust and will sustain without intervention. Others are fragile and depend on specific individuals, temporary conditions, or processes that are one change away from breaking.

The most effective pricing improvement efforts begin with this diagnosis and use it to create a focused action plan. They identify the two or three areas where improvement will produce the greatest return, and they invest in those areas with enough depth to produce visible results.

This is not a comprehensive transformation. It is a targeted intervention based on evidence. And it is the approach most likely to produce sustainable improvement, because it respects the organization’s capacity for change while ensuring that the change it makes actually matters.

This is the twentieth in a series exploring how organizations can connect pricing intent to execution through disciplined operating models, clear governance, and scalable workflows.

Explore more on pricing, revenue management, and commercial program optimization at the IMA360 Learning Center:

Chris Newton is Vice President of Marketing and Sales at IMA360, where he leads brand strategy, market expansion, and customer engagement. With a background spanning commercial strategy and revenue operations, Chris works closely with enterprise teams navigating the complexities of pricing, programs, and profit optimization. Connect with him on LinkedIn: