{"id":994194,"date":"2025-09-24T12:13:27","date_gmt":"2025-09-24T11:13:27","guid":{"rendered":"https:\/\/www.artefact.com\/?post_type=blog&p=994194"},"modified":"2025-09-29T11:08:48","modified_gmt":"2025-09-29T10:08:48","slug":"the-execution-problem-why-even-flawless-pricing-strategies-fail-between-the-c-suite-and-the-shelf","status":"publish","type":"blog","link":"https:\/\/www.artefact.com\/es\/blog\/the-execution-problem-why-even-flawless-pricing-strategies-fail-between-the-c-suite-and-the-shelf\/","title":{"rendered":"El problema de la ejecuci\u00f3n: Por qu\u00e9 incluso las estrategias de precios impecables fallan entre la alta direcci\u00f3n y el punto de venta"},"content":{"rendered":"

The Labyrinth of Lost Margin : Deconstructing the Execution Gap<\/h2>\n

The Commercial Policy Swamp : Discount Waterfalls and Promotion Mysteries<\/strong><\/h3>\n

Significant margin leakage originates within a company’s own commercial frameworks. This is often best understood through the concept of the Price Waterfall\u2014the chain of cascading parameters that connect a product’s list price to the final “pocket price” the company retains. To arrive at a desired sell-out price, a complex sequence of calculations involving multiple taxes, sell-in prices, distributor and retailer margins, and various commercial incentives must be managed.\u00b3 Managing this complexity through multiple spreadsheets is not only inefficient but also a primary source of errors that silently erode profitability.<\/span> This intricate, often country-specific, financial logic is precisely where generic, off-the-shelf software often fails, unable to capture the full nuance required for accurate pricing.<\/b><\/p>\n

For many consumer goods companies, promotional spending is the second-largest line item after COGS, yet visibility into its effectiveness is alarmingly poor.\u2074 Most organizations struggle to identify which promotions genuinely drive incremental growth, how to allocate spend effectively, and whether new offers are simply cannibalizing existing sales.\u2074 Without a clear understanding of ROI, this massive investment remains a high-stakes gamble.<\/span><\/p>\n

The Portfolio Blind Spot: The Hidden Dynamics of Customer Demand<\/strong><\/h3>\n

A profound, yet often overlooked, source of margin leakage lies in the complex interactions between products at the point of sale. Capturing these cross-SKU dynamics is crucial to minimize cannibalization and ensure complementary products are jointly available.\u00b2 <\/span>While modern software attempts to solve this, their ‘one-size-fits-all’ cannibalization models often miss the unique substitution patterns of a specific brand portfolio, leading to flawed recommendations that a bespoke model would avoid.<\/b>Traditionally, this complexity has been left to the business experience of category managers\u2014a manual approach ill-equipped for today’s massive product catalogs.\u00b2 This blind spot has a direct financial impact; estimates suggest that around 30% of a promoted item’s sales uplift comes from cannibalized sales of other full-priced products.\u2075<\/span><\/p>\n

The Channel Arbitrage Trap: When Margins Create Chaos<\/strong><\/h3>\n

Margin leakage is frequently an unintended consequence of a complex channel landscape, making it challenging to balance pricing across outlets and geographies.\u2074 A manufacturer’s target margin is a channel average, with significant variation at the account level.\u00b3 This necessary differentiation creates the arbitrage trap, where “mega accounts” receive deeper discounts, leading to wide price variations for the same product across the market.\u00b3 Without a robust governance framework, this variation often lacks a rational basis, leading to channel conflict and the erosion of the very margin the pricing strategy was designed to protect.\u00b9<\/span><\/p>\n

A Disciplined Framework for Closing the Execution Gap<\/h2>\n

Navigating the maze requires a disciplined, analytics-powered execution framework. This framework consists of four integrated stages that transform a high-level plan into a profitable reality.<\/p>\n

Step 1: Defining the Strategic Pricing Architecture<\/strong><\/h3>\n

The foundation of execution is a clear strategic architecture. This stage moves beyond a single price point to establish core principles of value capture, defining price positioning and structure for different segments, regions, and channels. A critical component is mapping the margin distribution across the value chain (D2C, B2B, B2B2C). This architecture provides the guardrails and initial hypotheses to be refined in subsequent stages.<\/p>\n

Step 2: Refining Strategy with Advanced Demand Decomposition<\/strong><\/h3>\n

With the architecture in place, the next step is to enrich it with a deep, analytical understanding of customer behavior. Crucially, this is not just about building a standalone elasticity model. A truly effective price optimizer must be tightly bound by the business rules, positioning, and architectural constraints defined in Step 1. This is achieved through advanced demand decomposition, which isolates key sales drivers like baseline demand, price elasticity, and halo effects. In complex retail environments, advanced neural-network models can even uncover hidden substitution patterns from millions of purchase receipts.\u00b2 This data science-led refinement transforms the initial architecture into a nuanced, evidence-based plan.<\/p>\n

A prime example is a pricing project for a major food retailer. By deploying an elasticity model and an optimization engine, Artefact identified a potential gain of over BRL 20 million in profit margin with minimal price adjustments. The key was to accurately decompose demand\u2014isolating baseline sales from promotional lifts and seasonality\u2014to distinguish between short-term promotional elasticity and the long-term impact of price elasticity on baseline demand.<\/p>\n

Step 3: Building a Bespoke Simulation & Pricing Capability<\/strong><\/h3>\n

Here, the “make or buy” decision becomes a reflection of strategic maturity. For companies where pricing is a core business competency, the only viable long-term path is to “make”\u2014to build a bespoke, centralized pricing capability.<\/p>\n

Opting to “buy” an off-the-shelf solution might seem faster, but it introduces significant risks. First, these platforms are notoriously difficult to integrate with a company\u2019s unique commercial processes and core systems (like ERPs), often resulting in a fragmented ecosystem that requires costly and brittle customizations. Second, and more critically, they rely on generic “vanilla” AI algorithms. Such black-box models are incapable of capturing the unique DNA of a business\u2014the nuances of local tax structures, specific cross-product cannibalization effects, or regional demand patterns\u2014leading to imprecise and potentially flawed recommendations.<\/p>\n

In contrast, building a bespoke pricing engine transforms this capability from an operational expense into proprietary intellectual property. It allows for the development of custom-tailored algorithms that learn from the company’s own data, ensuring full process integration and delivering far greater accuracy. This engine, featuring a powerful simulator, becomes the single source of truth, allowing leaders to model the P&L impact of any decision before it reaches the market and turning pricing into a true strategic weapon.<\/p>\n

Step 4: Governing the Execution with Policies, Incentives, and Monitoring<\/strong><\/h3>\n

The final stage is governing the price, which evolves from a static set of rules into a dynamic, intelligence-powered framework. This system ensures the pricing strategy is not only executed correctly but also remains effective in a changing market.<\/p>\n

Internally, this requires the continuous monitoring and update of all price waterfall attributes\u2014from client segment margins and commercial conditions to market taxes.<\/strong> This ensures the pricing engine’s logic is always current, which in turn empowers commercial support tools to show salespeople the accurate, real-time P&L consequences of any proposed discount.<\/p>\n

Externally, a robust Business Intelligence (BI) “control tower” connects this internal execution data with market intelligence from sources like Nielsen or Neogrid\u2014a level of deep integration with both legacy and external systems that typically requires a custom-built solution. This provides leadership with a clear, automated view of the strategy’s real-world performance, flagging deviations between the planned price and the price on the shelf. It closes the loop by assessing the effectiveness of the strategy against competitors, providing the crucial feedback needed to refine and adapt over time.<\/p>\n

The Business Impact: From Strategic Theory to Financial Reality<\/h2>\n

Measurable Financial Gains<\/strong><\/h3>\n

The adoption of this disciplined framework delivers clear financial returns. Across industries, pricing excellence initiatives produce an uplift in Return on Sales (RoS) of 2 to 7 percentage points.\u00b9 One company that reset its prices using a new analytics-driven process saw its RoS increase by 3-5 percentage points with no significant volume change.\u00b9 This capability creates a lasting advantage, with confident firms realizing a profit margin premium of 3 percentage points over their peers.\u00b2<\/p>\n

Enhanced Strategic Agility and Decision Support<\/strong><\/h3>\n

A bespoke intelligence framework transforms decision-making itself, providing category managers with scientifically-backed tools for assortment and promotion planning.\u00b2 The agility it creates is not in the ability to change prices frequently, but in the ability to understand performance, enforce the correct price, and strategically adjust the underlying policies when necessary.<\/strong> This data-driven foundation allows companies to improve forecasting, reduce surprises, and respond to market dynamics with surgical precision.\u2078<\/p>\n

This level of strategic agility is a direct benefit of owning the technology stack. Unlike being tied to a vendor’s development roadmap and release cycles, an in-house capability can be adapted and evolved in real-time as business priorities shift.<\/strong><\/p>\n

Conclusion: Are You Solving for Price or for Profit?<\/h2>\n

As Warren Buffett noted, pricing power is the ultimate test of a “very good business.”\u00b9 In today\u2019s market, that power is not a theoretical concept but a tangible outcome forged in the reality of execution. The critical challenge for leaders is to recognize that a perfect price on paper is worthless if its value erodes in the final foot of the customer journey. The question is no longer simply “What is the right price?” but “Do we have the disciplined framework, bespoke capabilities, and governance to deliver that price\u2014and its intended margin\u2014profitably and consistently to our customers?”<\/p>\n

References – EN<\/h2>\n
    \n
  1. McKinsey & Company. The Hidden Power of Pricing: How B2B Companies Can Unlock Profit. New York: McKinsey on Marketing & Sales; 2014.<\/li>\n
  2. D\u00e9sir J, Auriau V, Mo\u017eina M, Malherbe E. Better Capturing Interactions between Products in Retail: Revisited Negative Sampling for Basket Choice Modeling. [Academic Paper, publication and year unavailable].<\/li>\n
  3. Qureshi J. A comprehensive guide to Pricing and Trade Promotion Management for Consumer Packaged Goods using a shelf-back approach. actionableinsights.online [Internet]; 2017. Available from: https:\/\/actionableinsights.online\/?p=83<\/li>\n
  4. Bedford Consulting. 3 tactics to optimise trade promotion management. Bedford Consulting Blog [Internet]; [date unknown]. Available from: https:\/\/bedfordconsulting.com\/3-tactics-to-optimise-trade-promotion-management\/<\/li>\n
  5. Herrala O. Evaluating cannibalization between items in retail promotions [Bachelor’s thesis]. Espoo: Aalto University School of Science; 2018.<\/li>\n
  6. Vertex, Inc. Global tax implications for scaling businesses [Internet]; 2024. Available from: https:\/\/www.vertexinc.com\/resources\/resource-library\/global-tax-implications-scaling-businesses<\/li>\n
  7. Fielitz C, Khanna M, et al. The art of software pricing: Unleashing growth with data-driven insights. McKinsey & Company [Internet]; 2023. Available from: https:\/\/www.mckinsey.com\/industries\/technology-media-and-telecommunications\/our-insights\/the-art-of-software-pricing-unleashing-growth-with-data-driven-insights<\/li>\n
  8. Sinha A, Izaret JM. Five Trends Will Define the Future of Pricing. Boston Consulting Group [Internet]; 2025. Available from: https:\/\/www.bcg.com\/publications\/2025\/five-trends-define-future-pricing<\/li>\n
  9. Symson. What is a Price Engine? The Ultimate Guide. Symson Blog [Internet]; [date unknown]. Available from: https:\/\/www.symson.com\/blog\/what-is-a-price-engine<\/li>\n
  10. Cortado Group. Why Pricing Governance is a Powerful Asset to Maximize Valuation. Cortado Group [Internet]; [date unknown]. Available from: https:\/\/cortadogroup.com\/insights\/maximize-valuation-with-pricing-governance\/<\/li>\n
  11. tgndata.com. Pricing Strategy: From Gut Feeling to Data-Driven Decisions [Internet]; [date unknown]. Available from: https:\/\/tgndata.com\/pricing-strategy-from-gut-feeling-to-data-driven-decisions\/<\/li>\n<\/ol>\n

    References – PT<\/h2>\n
      \n
    1. MCKINSEY & COMPANY. The Hidden Power of Pricing: How B2B Companies Can Unlock Profit. New York: McKinsey on Marketing & Sales, 2014.<\/li>\n
    2. D\u00c9SIR, Jules et al. Better Capturing Interactions between Products in Retail: Revisited Negative Sampling for Basket Choice Modeling. [S. l.: s. n., s. d.].<\/li>\n
    3. QURESHI, Junaid. A comprehensive guide to Pricing and Trade Promotion Management for Consumer Packaged Goods using a shelf-back approach. actionableinsights.online<\/em>, 8 jan. 2017. Dispon\u00edvel em: <https:\/\/actionableinsights.online\/?p=83>. Acesso em: 21 ago. 2025.<\/li>\n
    4. BEDFORD CONSULTING. 3 tactics to optimise trade promotion management. Bedford Consulting Blog<\/em>, [s. d.]. Dispon\u00edvel em: <https:\/\/bedfordconsulting.com\/3-tactics-to-optimise-trade-promotion-management\/>. Acesso em: 21 ago. 2025.<\/li>\n
    5. HERRALA, Olli. Evaluating cannibalization between items in retail promotions<\/em>. 2018. Trabalho de Conclus\u00e3o de Curso (Bacharelado em Engenharia F\u00edsica e Matem\u00e1tica) \u2013 School of Science, Aalto University, Espoo, 2018.<\/li>\n
    6. VERTEX, INC. Global tax implications for scaling businesses. Vertex, Inc., 10 dez. 2024. Dispon\u00edvel em: <https:\/\/www.vertexinc.com\/resources\/resource-library\/global-tax-implications-scaling-businesses>. Acesso em: 21 ago. 2025.<\/li>\n
    7. FIELITZ, Christian et al. The art of software pricing: Unleashing growth with data-driven insights. McKinsey & Company<\/em>, 2 jun. 2023. Dispon\u00edvel em: <https:\/\/www.mckinsey.com\/industries\/technology-media-and-telecommunications\/our-insights\/the-art-of-software-pricing-unleashing-growth-with-data-driven-insights>. Acesso em: 21 ago. 2025.<\/li>\n
    8. SINHA, Arnab; IZARET, Jean-Manuel. Five Trends Will Define the Future of Pricing. Boston Consulting Group<\/em>, 2025. Dispon\u00edvel em: <https:\/\/www.bcg.com\/publications\/2025\/five-trends-define-future-pricing>. Acesso em: 21 ago. 2025.<\/li>\n
    9. SYMSON. What is a Price Engine? The Ultimate Guide. Symson Blog<\/em>, [s. d.]. Dispon\u00edvel em: <https:\/\/www.symson.com\/blog\/what-is-a-price-engine>. Acesso em: 21 ago. 2025.<\/li>\n
    10. CORTADO GROUP. Why Pricing Governance is a Powerful Asset to Maximize Valuation. Cortado Group<\/em>, [s. d.]. Dispon\u00edvel em: <https:\/\/cortadogroup.com\/insights\/maximize-valuation-with-pricing-governance\/>. Acesso em: 21 ago. 2025.<\/li>\n
    11. TGNDATA. Pricing Strategy: From Gut Feeling to Data-Driven Decisions. tgndata.com, [s. d.]. Dispon\u00edvel em: <https:\/\/tgndata.com\/pricing-strategy-from-gut-feeling-to-data-driven-decisions\/>. Acesso em: 21 ago. 2025.<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

      La fuga de m\u00e1rgenes se esconde a menudo en estrategias complejas de precios, promociones y multicanales, en las que los precios de cat\u00e1logo rara vez coinciden con el precio final de bolsillo. Las promociones pueden canibalizar las ventas, y los descuentos incoherentes en los canales crean riesgos de arbitraje, erosionando silenciosamente los m\u00e1rgenes. Las empresas que definen arquitecturas de precios claras, analizan la demanda en profundidad y gobiernan la ejecuci\u00f3n con una supervisi\u00f3n en tiempo real convierten la fijaci\u00f3n de precios en una palanca estrat\u00e9gica. El resultado: mayor rentabilidad, decisiones comerciales m\u00e1s inteligentes y una captura de valor sostenible.<\/p>","protected":false},"featured_media":994195,"parent":0,"template":"","meta":{"_acf_changed":false,"ep_exclude_from_search":false},"blog-category":[2995,2997,21940],"blog-language":[2991],"class_list":["post-994194","blog","type-blog","status-publish","has-post-thumbnail","hentry","blog-category-ai-technology","blog-category-data-marketing","blog-category-generative-ai","blog-language-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.artefact.com\/es\/wp-json\/wp\/v2\/blog\/994194","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.artefact.com\/es\/wp-json\/wp\/v2\/blog"}],"about":[{"href":"https:\/\/www.artefact.com\/es\/wp-json\/wp\/v2\/types\/blog"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.artefact.com\/es\/wp-json\/wp\/v2\/media\/994195"}],"wp:attachment":[{"href":"https:\/\/www.artefact.com\/es\/wp-json\/wp\/v2\/media?parent=994194"}],"wp:term":[{"taxonomy":"blog-category","embeddable":true,"href":"https:\/\/www.artefact.com\/es\/wp-json\/wp\/v2\/blog-category?post=994194"},{"taxonomy":"blog-language","embeddable":true,"href":"https:\/\/www.artefact.com\/es\/wp-json\/wp\/v2\/blog-language?post=994194"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}