Unformatted text preview: ey's Haas School of Business: "In a recessionary
environment, everyone starts focusing on cost, but the real news is pricing."
Indeed, paying more attention to pricing may be the best thing a company can do in a flat or eroding economy Even small
adjustments to price can have a big impact: A McKinsey study found that a 1 percent change in
price could result in an 8.6 percent change in profitability. By comparison, says Zawada, tinkering with costs has much
less impact. A 1 percent improvement in fixed costs generates only a 1.7 percent increase in operating profits, while the
same 1 percent improvement in variable costs (including raw materials , labor, etc.) begets a 5.9 percent rise in operating
profits. "Price is the largest lever on profitability," he says.
By understanding promotions better, for example, a specialty retailer might be able to drop the price of a $5 item by 10
percent and increase weekly profits by $14,000, says Eric Mitchell, founder and president of t...
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