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Six Sigma pricing.

ManMohan S Sodhi1, Navdeep S Sodhi

  • 1City University's Cass Business School, London. mohansodhi@gmail.com

Harvard Business Review
|June 3, 2005
PubMed
Summary

Applying Six Sigma (a structured methodology) to pricing processes can significantly boost revenue. Acme Incorporated achieved $6 million in extra revenue by optimizing its price-setting, demonstrating the method

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Area of Science:

  • Business Management
  • Operations Research
  • Quality Management

Background:

  • Companies excel at cost management through Total Quality Management (TQM) and Six Sigma.
  • Revenue management often lacks the rigorous discipline applied to cost control.

Purpose of the Study:

  • To demonstrate the application of Six Sigma to a revenue-generating process: price setting.
  • To illustrate how a manufacturing company can improve pricing strategies.

Main Methods:

  • Acme Incorporated applied the five Six Sigma steps: Define, Measure, Analyze, Improve, Control (DMAIC).
  • A Six Sigma black belt guided a team in analyzing and modifying the pricing-agreement process.
  • Defects were defined as items sold at unauthorized prices.

Main Results:

  • Successfully reduced unauthorized pricing, increasing revenue by $6 million on a single product line within six months.
  • Streamlined the pricing process, reducing organizational friction.
  • Implemented controls to sustain pricing improvements.

Conclusions:

  • Six Sigma is an effective methodology for optimizing revenue-generating processes, not just cost reduction.
  • Companies can enhance price control and profitability by applying structured problem-solving to pricing.
  • The approach can improve revenue without negatively impacting customer relations.

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