Among the many things that jostle for attention in the typical CFO's agenda, pricing isn't usually a priority, crowded out by more visible demands like cutting costs or structuring mergers. Yet a straightforward review of major contracts or a structured analysis of the costs to serve individual customers can reveal considerable opportunity to increase profitability. The unintentional accumulation of discounts and incremental concessions to buyer demands (for benefits like customized design, exceptional payment terms, or prioritized delivery) can significantly undermine a company's intended pricing structure. Given strong evidence that a sound pricing strategy can create real value, some CFOs are being enticed into this neglected area.

Committed leadership on pricing strategy improves a company's operating profit margin by between 2 percent and 7 percent

When CFOs do get involved in pricing, the impact can be significant. In McKinsey's experience with more than 500 pricing studies over the past two years, committed leadership on pricing strategy improves a company's operating profit margin by between 2 percent and 7 percent, often doubling historic profit margins. To put this in perspective, the average 5 percent improvement in returns on sales from improved pricing creates $1.5 billion of additional value over five years for...