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2021 | OriginalPaper | Chapter

6. Profit Driver: Price

Author : Hermann Simon

Published in: True Profit!

Publisher: Springer International Publishing

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Abstract

There are only three profit drivers: price, sales volume, and costs. Revenue is the product of price and sales volume.

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previous chapter Diagnosis and Therapy

next chapter Profit Driver: Sales Volume

See Albers [1].

Sethuraman et al. [2].

See Simon-Kucher & Partners, Global Pricing Survey 2019, London 2019.

See Simon and Fassnacht [3]. See also Simon [4].

This corresponds to the pre-tax return on sales. For simplicity’s sake, we leave taxes out of the calculation, because they do not have any effect on the relative advantages or disadvantages.

This is the ceteris paribus condition, which is “all else being equal.”

We have assumed a corporate tax rate of 30% for this calculation. The actual tax rates vary by country, and range between 20 and 33 % for the selected countries.

The basis for the revenue and profit data is the Fortune Global 500 List, Fortune, August/September 2020, pp. F1-F22. The profit increase is calculated by assuming a corporate tax of 30%. This means that of 1% price increase 0.7% are net profit. The profit increase is calculated as follows: profit increase in percent = 0.7%/net margin in % × 100. For Walmart 0.7%/2.84% × 100 = 24.6%.

“Die Luft wird dünner,” General-Anzeiger Bonn, February 9, 2015, p. 7.

Marx [5].

The concrete form of profit potential depends on the price-response and cost functions.

See Ariely [6], and Trevisan [7].

See Gourville and Soman [8].

See Frankfurter Allgemeine Zeitung, August 7, 2018, p. 7.

Ibid.

http://www.pay-per-wash.biz/de_de/, called up on November 10, 2020.

On November 4, 2020 the market capitalization of Adobe was $233.72 billion.

Herrmann et al. [9].

https://www.enercon.de/en/dienstleistungsportfolio/service/.

Friemel and Malcher [10].

Siedenbiedel [11].

Zuboff [12].

Morozov [13].

Craymer [14].

See Bertini and Koenigsberg [15].

See Srinivasan et al. [16].

Excerpted from an interview with Warren Buffett before the Financial Crisis Inquiry Commission (FCIC) on May 26, 2010.

See Thiel [17].

The EVP concept is registered as a brand number 174368295 at the INPI (Institut National de la Propriété Intellectuelle), Paris.

For the definition of free cash flow, see Chap. 1.

“Wall Street braced for ‘earnings recession’ as margins fall, US companies struggle to pass on rising labour, transportation and raw material costs,” Financial Times, March 26, 2019.

See Simon-Kucher & Partners, Global Pricing Study 2014, Bonn 2014.

Albers, S., Mantrala, M. K., & Sridhar, S. (2010). Personal Selling Elasticities: A Meta-Analysis, Journal of Marketing Research, 5, pp. 840–853.

Sethuraman, R., Tellis, G. J., & Briesch, R. A. (2011). How Well Does Advertising Work? Generalizations from Meta-Analysis of Brand Advertising Elasticities, Journal of Marketing Research, 48(3), pp. 457–471.

Simon, H., & Fassnacht, M. (2019). Price Management - Strategy, Analysis, Decision, Implementation, New York: Springer Nature. CrossRef

Simon, H. (2015). Confessions of the Pricing Man, New York: Springer.CrossRef

Marx, K. (1951). Wages, Prices, and Profits, Marx Engels Selected Works, I, Progress Publishers, Moscow, p. 28.

Ariely, D. (2010). Predictably Irrational: The Hidden Forces that Shape Our Decisions, New York: Harper Perennial.

Trevisan, E. (2013). The Irrational Consumer: Applying Behavioural Economics to Your Business Strategy, London: Routledge.

Gourville, J. T., & Soman, D. (1998). Payment Depreciation: The Behavioral Effects of Temporally Separating Payments from Consumption, Journal of Consumer Research, 25(2), pp. 160–174.

Herrmann, A., Brenner, W., & Stadler, R. (2018) Autonomous Driving: How the Driverless Revolution Will Change the World, London: Emerald Publishing, p. 29.CrossRef

10.

Friemel, K., & Malcher, I. (2006). Gewusst wie, McKinsey Wissen, 18, pp. 18–25.

11.

Siedenbiedel, C. (2014). Revolution der KfZ-Versicherung, FAZnet, January 13.

12.

Zuboff, S. (2015). Die Vorteile der Nachzügler, Frankfurter Allgemeine Zeitung, March 23, p. 15.

13.

Morozov, E. (2013). Unser Leben wird umgekrempelt, Frankfurter Allgemeine Zeitung, November 2, p. 14.

14.

Craymer, L. (2013). Weigh More, Pay More on Samoa Air, Wall Street Journal Online, April.

15.

Bertini, M., & Koenigsberg, O. (2020) The Ends Game – How Smart Companies Stop Selling Products and Start Delivering Value, Cambridge: MIT Press.CrossRef

16.

Srinivasan, S., Pauwels, K., Silva-Risso, J., & Hanssens, D. M. (2009). Product Innovations, Advertising, and Stock Returns, Journal of Marketing, 73 (January), pp. 24–43.

17.

Thiel, P. (2014). Zero to One. Notes on Startups or How to Build the Future, New York: Crown Publishing Group.

Title: Profit Driver: Price
Author: Hermann Simon
Publisher: Springer International Publishing
Book: True Profit!
Print ISBN: 978-3-030-76701-3

Electronic ISBN: 978-3-030-76702-0

Copyright Year: 2021
DOI: https://doi.org/10.1007/978-3-030-76702-0_6