The Price Waterfall is a great tool for understanding the effect of pricing and discounting – but it’s only a starting point. It is of limited value if it is not preceded and accompanied by efforts directed at the other influences on the pricing operation. Properly linking the Price Waterfall to them is indispensable to gain control over how much actually ends up in the company’s pocket.
Managers in pricing, sales operations, and finance often try to employ the Price Waterfall (PW) as a tool to control and manage pricing and discounting. The PW – a chart showing revenues cascading down the multiple steps from list price to invoice to pocket price – can indeed be a powerful way to visualize the chain of transactions leading to money in the company’s pocket. However, this paper will show that the PW by itself doesn’t lead to effective pricing execution. In fact, the PW can wind up as just another financial tool that disappoints. It can even be misleading, if it is undertaken without a correct understanding of the levers involved in the organization’s pricing processes, without sustained maintenance of the information systems that support it, and without trained practitioners in charge of making pricing decisions.
