The Use of Pricing Tools to Leverage the Business Partners’ Profitability

Diogo Machado and Rui Fernandes

Applied Finance and Accounting, 2021, vol. 7, issue 1, 44-57

Abstract: The profitability set per customer of a given organization implies several challenges, from the calculation of the net pricing to the development of a cost allocation system within the company's processes. Thus, the work proposed aims at exploring the potential of a customer evaluation methodology, using pricing techniques as a supporting tool, where the analysis of the customer clusters profitability will be done, in order to identify profitability patterns, according to the characteristics of the relationship between the customer and the company, including the customer's supply chain role, the dimension and the potential of the business under study, the types of business relationships that are established, as well as the relative effects of each cluster own characteristics in the overall business relationship. After developing the methodology, the customer profitability will be analyzed and recommendations will be set, highlighting and quantifying the possible improvements in the contribution, under leveraging techniques by the average and sensitivity analysis simulations. These insights will support the companies in their pricing decisions also as shifting their focus towards attracting and retaining the customers from the more profitable clusters.

Date: 2021
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