What is price realisation and why is it important?

Price realisation

Apr 29

By Michelle Vestergaard

The mechanism of pricing a product or service to achieving optimal profitability have been a subject of analysis for years – and with good reason.

At NORTH Consulting we have a long track record of driving commercial transformations for global B2B clients, and we have helped numerous companies bridge the gap between their pricing strategy (price setting) and their financial outcomes (price getting). As wonderful as bridging this gap may be, however, it’s not as simple as it sounds. Price realisation isn't just about implementing technology or setting prices in an Excel sheet. It’s about managing an entire ecosystem — commercial goals, discount logic, list prices, price rules, approval processes, fulfilment processes, measurements and meticulous follow-up. It’s a system that needs to be integrated into your entire value chain, from product hierarchy to any associated service agreements – not just your pricing rules.

We are kicking-off a four-part series that digs deep into the idea of price realisation, exploring why it’s so important for companies and highlighting common pitfalls that can derail even the best-laid plans.

What is price realisation?

Simply put, price realisation is the process of turning a company’s pricing strategy into tangible financial results. And, at first glance, that may sound easy enough. However, while setting a price for your product is one thing, making sure that price sticks from the initial sale all the way through to your profit and loss statement is something else entirely. Price realisation is about collecting the full anticipated value from customers, ensuring that the expected revenue is fully captured without unnecessary concessions along the way.

Price realisation aligns strategy with execution and requires comprehensive planning across the entire organisation. Every department—sales, finance, operations and even customer service—needs to be focused on protecting the pricing structure. When internal teams aren’t fully integrated into pricing discussions, breakdowns in communication occur, leading to the unintentional erosion of value.

Consider the effort that businesses put into developing their pricing strategies. They often conduct extensive market research, analyse competitor pricing and segment their offerings to maximise revenue potential across different customer bases. In theory, this should create a clear path to profitability. However, when this strategy is put into practice, the actual results tend to fall short of expectations. And why? Because discounts, concessions and misaligned internal incentives result in value leakage and a gradual erosion of profitability. Whether it’s free shipping or additional services, these factors are rarely part of an original pricing framework.

The road from pricing strategy to financial realisation is paved with numerous such small trade-offs that, individually, may seem insignificant. However, they can accumulate quickly, causing a major impact on revenue and profitability. For instance, agreeing to a price during negotiations only to offer last-minute discounts or incentives can seriously cut into margins. This gap between planned pricing and actual outcomes is at the core of price realisation, and addressing it is key to maintaining a company’s financial health.

Why is price realisation so crucial

Price realisation is where the rubber meets the road – a key strategy for a number of good reasons:

Profitability is directly tied to how well you can consciously enforce your pricing strategy. If you consistently experience value leakage due to unchecked discounts or misaligned incentives, you’re leaving money on the table. Companies that fail to manage their price realisation process often see their margins shrink over time without fully understanding why.
Product and pricing positioning is at stake. When companies frequently offer discounts or concessions, they inadvertently train their customers to expect lower prices, even when the official pricing remains high. Over time, this erodes the perceived value of a product or service, making it harder to justify price increases or maintain premium positioning.
Employee and customer trust is at risk. Price realisation has a ripple effect on the entire sales and operational process. If there’s a disconnect between what the pricing team plans and what the sales and service team can execute, it leads to internal confusion and inefficiency, which can cause a long list of perils including employee dissatisfaction, higher-than-necessary employee turnover, and even contradicting or unsatisfactory behavior towards customers, which ultimately hurts customer relationships and, by implication, full revenue potential.

In today’s business climate, better solutions exist than ‘winging it’ or ‘this is how we’ve always done business’. With data-driven decision-making increasingly feasible, tracking price realization through meticulously well-defined and well-collected pricing metrics that span the entire value chain offers valuable insights into where a company’s pricing strategy is breaking down. Are certain customers or segments more prone to negotiating lower prices? Are there consistent issues with specific products or services? Which value components tend to leak the most? Understanding these dynamics allows companies to make more informed, strategic adjustments, ultimately improving performance.

“Price realisation is the silent driver of your company’s profitability.”

The common pitfalls

While price realisation may seem like a straightforward concept, there are numerous issues that companies often stumble into – often without even realising it. These pitfalls can seriously erode profitability and prevent businesses from fully capturing the value they worked so hard to plan for.

One common mistake is treating pricing as a showcase project. Often, executives (particularly CFOs or CEOs) push for pricing initiatives to demonstrate quick, tangible results. Typically this takes the shape of list price increases that are measured only at contract level, only for the core product itself – and never the realised price on the P&L (e.g. non-allocated total-order-level discounts, discounts on product add-ons or services). They want to see the immediate impact on the bottom line, which is understandable. However, when pricing is treated as a standalone one-off initiative, disconnected from broader company operations, the long-term impact is limited. This results in a few short-term wins, with the pricing strategy unravelling over time as it fails to integrate into everyday business processes.
Another major issue is the misalignment of authority and responsibility. Pricing decisions are frequently made at the top, but those who need to enforce these decisions—sales teams, account managers, or frontline staff—often lack the authority, understanding or alternative options needed to stand firm when customers demand discounts. Worst case, they are even incentivised in the oppositive direction of ‘maximum pricing’ or ‘full portfolio profitability’. Without the right incentives, the power to say “no” or the tools to justify the pricing structure, these employees may offer concessions that weaken the overall strategy.
The ‘isolation of pricing’ from other parts of the business is another common problem. When pricing initiatives are siloed and kept as a separate function, they lose their effectiveness. For instance, if the sales team isn’t fully aligned with the pricing guardrails, or if marketing isn’t aware of the pricing logic behind a product, the overall execution of price realisation can simply fall apart. Pricing must be embedded within the broader commercial strategy in order to be successful.
Short-term thinking can also undermine the strategy. In the race to meet quarterly targets, companies may offer deep discounts or concessions to close deals. However, this often sets a dangerous precedent, making it difficult to return to full pricing and damaging long-term profitability.
The lack of joint definitions is a silent killer that all of our clients face. Agreeing on a joint definition of the global pricing water-fall, or in other words, all the individual value components that make up the total ‘price potential’ or ‘revenue potential’ of a given product or service is crucial to succeed with price optimisations. This requires a strict break-down of value into the smallest measurable component, and most importantly, agreeing with all stakeholders and regions, how their local definitions match the global hierarchy. Only then, can technology begin aiding in gaining global transparency on price realisation.
Finally, many companies fail to invest in the right end-to-end tools and processes to track and monitor price realisation. The biggest risk for large global B2B players, is the disconnected, custom-made, local systems that aren’t compatible in its pricing definitions, data architecture or even in integrations of data flow. If each local system has its own way of recounting pricing performance, the lack of synergies will deter a strategic approach to pricing, and it will be impossible to track concessions, monitor margins and enforce pricing rules to the point where global pricing initiatives will make little to no difference.

Conclusion

Price realisation is the silent driver of your company’s profitability. It’s not just about setting prices—it’s about ensuring those prices are maintained and captured across the entire value chain. Technology is merely an enabler; the real challenge lies in setting pricing rules that exhaustively break down the full revenue potential into its individual components and aligning all stakeholders with the company’s pricing strategy and execution across the full value chain.

In the next blog in our series, we’ll take a closer look at the trends and opportunities that impact pricing realisation. From economic fluctuations to shifts in customer behavior, there’s a lot to consider when building a solid price strategy.