TOOL KIT

Many organizations use Six Sigma disciplines to decrease

the costs of nnanufacturing or service processes.

They can use the sanne tools to increase revenues.

Six Sigma Pricingby ManMohan S.Sodhi and NavdeepS.Sodhi

MANY COMPANIES have becomegood at managing costs and mas-

tering manufacturing efficiencies. TheTQM and Six Sigma movements haveseen to that. But the discipline so oftenbrought to the cost side ofthe businessequation is far less common on the rev-enue side. As a result, many companiescontinue to leak cash from the top line.

In this article, we describe how a globalmanufacturer of industrial equipment,which we will call Acme Incorporated,applied Sbt Sigma rigor to its price-setting process for one product line togreat effect. Acme met its target of in-creasing annual revenue by $500,000in less than three months. When Acmesubsequently raised list prices across theboard, the company reaped the fullvalue of the increase for this productline, but much less in others. And in justsix months, annual revenue increasesreached an eye-popping $5.8 million forthis product line alone, ail of whichwent straight to the bottom line as well.

Not only did the reforms stem therevenue leaks, they also removed much

of the organizational friction that hadlong bedeviled the company's pricingprocess by making it clear who had au-thority over which pricing decisions. Un-certainty about pricing policy (or ratherthe appearance of it) may help sales-people in their negotiations with cus-tomers, but it does a company no giwdfor its own people to be confused andconflicted on that score.

At Acme, that tension was readily ap-parent. On the one hand, Acme's salesreps saw their mission as building mar-ket share-senior management's statedaim. Being close to the customer, theyfelt they knew what the best price was.They saw the pricing managers and an-alysts as an obstruction, out of touchand too slow to respond to changingfacts on the ground. They would oftencircumvent the necessary checks andcontrols on invoiced prices, potentiallyeroding the company's profit margins.

For their part, the pricing analystssaw themselves as the guardians ofAcme's profitability, providing essentialpricing analysis and, in their opinion,

MAY 2005

T O O L K I T • Six Sigma Pricing

quick turnaround on approvals. As wewill see, the Sbi Sigma proiect generatedhard evidence that significantly reducedthe tension in this uneasy Sales-Pricingrelationship, which became less influ-enced by gut instinct or emotion.

The ProblemThe trigger for the project was a changein market conditions, which put Acmeunder considerable pricing pressure.The price of two key raw materials, steeland petroleum, had risen quickly andsharply,threateningto inflict a projected$20 million in unplanned annual incre-mental costs on the company. Some ofits steel suppliers had even refused tohonor existing contracts. Overall, aver-age costs had doubled within the spaceof a few months.

The company had no choice but toraise list prices. But by how much? Raiseprices too much, and Acme stood tolose customers to rivals. Raise prices toolittle, and it would not be worth the ef-fort to announce and implement thechange. Moreover, Acme could not besure whether a nominal increase in listprices would even hit the bottom line.The organization's pricing processesmade it difficult to control the price thatwas actually invoiced.

Acme's myriad products could eachbe configured in numerous ways, ac-cording to customers' needs, and thecompany published list prices for everypossible configuration. But each salethen had its own individually approveddiscount and hence its own invoicedprice. Prices and discounts were set bythe pricing division. Acme's sales divi-sion had market-specific blanket ceilingsfor percentage discounts on all prod-ucts, and sales reps had to obtain au-thorization from Pricing to offer deeperdiscounts. Pricing either approved therequest or set a slightly higher approvedprice, typically expressed as a percent-age of the list price. After the transac-

tion was completed. Sales invoiced thecustomer with a final transaction price,which was (in principle) the same as orslightly higher than the approved price.

But it was well known that top man-agement frowned on losing marketshare, and the absence of any effectivecontrols encouraged some salespeopleto short-circuit the process. A sales rep-resentative would ask Pricing for a dis-count that was much deeper than theguidelines allowed for, and even if Pric-ing complied, the representative mightoffer a further, unapproved discount toclose a deal. For instance, one order ap-proved by Pricing at $81,000 was actu-ally invoiced at $75,000, and another at$31,000 was invoiced at $28,000.

With tens of thousands of sales trans-actions per year, the task of making su reeach invoice accorded with the list andapproved prices was daunting. But thelack of control over final prices meantthat even if Acme could work out howmuch of a hike in list prices the marketcould bear, the company still could notbe sure it would actually see the in-crease in each transaction or even over-all, across transactions.

The ProjectHow to get a grip on the situation? Se-nior managers began by consideringwhat other parts ofthe organizationhad done to bring similarly variableprocesses under control. They knew thatAcme had enjoyed considerable successin reducing manufacturing variabilityby applying the famous Six Sigma disci-pline. Employees from different func-tions and organizational levels under-stood the methodology, and some hadcompany-specific Six Sigma certifica-tion, holding titles like Green Belt andBlack Belt, following the example ofsuch companies as Motorola and Gen-eral Electric.

It seemed to Acme's executives thatpricing closely resembled many manu-

ManMohan S. Sodhi (mohansodhi@gmailcom) is an associate professor at the CityUniversity's Cass Business School in London. Navdeep S. Sodhi (navdeepsodhi^gmail.com) is a pricing strategist who has worked in the airline, medical device, and manu-facturing industries. He is currently director of global pricing at Kennametal Inc., a tool-ing solutions company based in Latrobe, Pennsylvania.

facturing processes. A product's invoicedprice could be considered a final prod-uct, the result of a "manufacturing" pro-cess encompassing several stages. Theydecided, therefore, to pilot a Six Sigmapricing project in one ofthe company'sNorth American subsidiaries. If theproject led to better control of finalprices, they could roll out the approachthroughout the company's entire globaloperations.

A manager from Pricing was ap-pointed as project manager to carryout the five Six Sigma steps: define,measure, analyze, improve, and control.He was given the help of a Six Sigmaexpert, or Master Black Belt, recruitedfrom the manufacturing side. The proj-ect sponsor was the senior executive re-sponsible for pricing.

Definition. The first step in any SixSigma project is to clarify the problemand narrow its scope in such a waythat measurable goals can be achievedwithin a few months. Then a team isassembled to examine the process indetail, suggest improvements, and im-plement those recommendations. In themanufacturing realm, project manag-ers and their sponsors typically beginby defining what constitutes a defectand then establish a set of objectivesdesigned to reduce the occurrence ofsuch defects, (The phrase "Six Sigma" infact implies a goal of reducing the num-ber of defects to less than 3-4 per mil-lion occurrences, assuming that thequality of a product's attributes variesaccording to a normal bell-shaped dis-tribution pattern.)

Acme's project manager proposedthat a defect should be defined as atransaction invoiced at a price towerthan the one Pricing had approved (orlower than those allowed by the currentblanket guidelines, when approval hadnot been sought). Note that defects arebeing defined in relative terms, accord-ing to the blanket discount ceilings setfor the salespeople and the guidelinesestablished by the pricing analysts. Ifthe market were to take a turn for theworse, the ceilings could be raised; ifthe market were to strengthen, theycould be lowered. A defect occurs only

136 HARVARD BUSINESS RtVIEW

Six Sigma Pricing • TOOL KIT

when the actual invoiced price is out ofcompliance with the guidelines.

Once the definition of a defect wasset, the project manager, with the helpof the sponsor, recommended an ap-propriate scope for the project-that is,whether it should be limited to only oneparticular product line or applied to sev-eral. In this case, the project sponsor lim-ited the scope to a single product line.

The next step for the project manageris to propose a charter for the projectthat specifies the expected deliverables.Given the definition of a defective price,it was clear that this project would haveto deliver:• a better understanding ofthe existingpricing process;

• a modified process to control and,hence, improve final transaction prices;

• ways to track improvement in finalprices and to monitor compliance withthe process and with pricing guidelines.

Next, to collect data, carry out analy-sis, and ensure everyone's buy-in for anysubsequent implementation, the proj-ect manager enlisted people from thepricing, finance, marketing, IT, and salesdivisions to be part of the Six Sigmateam. The various team members wereselected for their functional and ana-lytical expertise. The finance person, forexample, was chosen because she wasfamiliar with the many pricing-relatedreports Acme was currently generatingand also with many of the company'sdata sources.

In addition, to endow the projea withinstitutional backing and to ensure thatteam members had good access to data,the project manager asked people in po-sitions of influence at Acme to serve ona steering committee for the project.The chair ofthe committee was the proj-ect sponsor. Other members includedthe director of sales, the vice presidentof IT, the vice president of finance, andthe vice president of marketing. Theyagreed that the project manager wouldmeet with the team and the steeringcommittee as needed to keep them ap-prised ofthe project's progress.

The first duty ofthe team was to con-firm the proposed problem definitionand project charter and to set a financial

The Six Sigma approach has considerably reducedthe Inherent friction between pricing and sales.

goal for the project. That was no easytask, as it was the first time Acme hadembarked on such a project. Nonethe-less, the team set a goal of increasingrevenues by $500,000 in the first yearfollowing implementation. This addi-tional revenue was to come entirelyfrom more efficient price management-in other words, from actions that didnot incur any losses in market share orsaies volumes. This was a far more am-bitious number than Acme had ever setfor comparable manufacturing or ser-vice Six Sigma projects, which had typi-cally delivered average annual cost sav-ings of less than $100,000.

Measurement. In the second step ofa Six Sigma project, the team gathersdata and prepares it for analysis. AtAcme, the project manager began bymapping the price agreement process,with team members helping to fill inprocess details. To generate and verify

the Information he needed, the projectmanager formally interviewed eightcolleagues from five functional divi-sions: IT, sales, pricing, finance, andmarketing. He also sought informalfeedback from other people in thesefunctions. As a result of this exercise,the team was able to draw a high-leveldiagram of the entire process showingthe fiow of information from one stepto the next (see the exhibit "What AreWe Doing?").

The map was supported by docu-mentation detailing the inputs (calledX's, in Six Sigma parlance) and outputs(Y's) associated with each step, showingalt the people and IT systems involved,and specifying whether the decision-making inputs could be controlled byPricing or Sales. The eventual outputvariable for the entire process is thefinal transaction price, but intermedi-ate steps have their own intermediate

MAY 2005 137

TOOL KIT • Six Sigma Pricing

What AreWe Doing?

Sales personnel

I Perform initialprice assess-ment withcustomer.

iI

Agree on pricewith customerwithout Pricingapproval.

When Acme's Six Sigma team mapped the com-

pany's existing pricing process, it became easy to

see not only how the process was supposed to

work but how it actually worked. The formal pro-

cess comprised six main steps, which should have

been taken in sequence (as depicted with solid

lines). But oftentimes, sales reps sidestepped it all

by negotiating final prices with the customer di-

rectly. Other times, the process got bogged down

as pricing analysts rooted around for information

they should have already obtained from the sales

staff in Step 2 or negotiations went back and forth

between the sales rep and the pricing analyst (es-

sentially getting stuck before Step 6).

' Submit priceapproval requestto Pricing.

A

Pricing personnel

Compilequotationinformation.

Cotnmiinicate approval lothe sales office originatingappnjval request.

Yes

Review and analyzequote by job,model, and system.

Yes

Issue purchase order. Release sales orden ship product Importing

outputs. For example, after an initialdiscussion with a customer, the outputcould be an agreed upon price that con-forms to guidelines, or it might be aproposed price that would have to bereferred to Pricing for approval. The in-puts are the characteristics ofthe deal,such as the product type, order size, ortime of year.

The map revealed a pricing processwith six main steps, which seemedstraightforward in principle. But it wasciear that in practice the sequence didnot work smoothly, that it was repletewith exceptions and shortcuts, and thatthe quality of inputs available to Salesor Pricing personnel in any step couldbe quite poor.

7. Perform initial price assessment vi/ithcustomer (Sales). The inputs for this arethe list price, the blanket discount guide-lines for Sales in the particular market,

and the customer's product and pric-ing requirements. The output is a ten-tative price (that is, a discount off thelist price). Approval is needed from Pric-ing if the discount is deeper than themaximum authorized for the particularmarket.

2. Submit price approval request to Pric-ing (Sales). For the Pricing personnel re-ceiving such a request, the inputs arethe price the sales rep has requested andthe guidelines for pricing analysts. Inpractice, sometimes this step, and mostof the subsequent ones, were circum-vented when a sales rep offered a finaldiscounted price to the customer with-out prior Pricing approval.

3. Compile quotation information (Pric-ing). The input is the information aboutthe customer and the order providedby the saies rep to support his or herrequest. The output is the complete de-

tails ofthe transaction in question. Thisstep should be trivial but often, in prac-tice, the sales rep did not or could notprovide enough information about thequotation, and the Pricing analyst ormanager would have to chase aroundto get the missing information.

4. Review and analyze quote (Pricing).Inputs are the completed quotation in-formation generated in the previoussteps (including the tentative price thesales rep has requested); reports sum-marizing the history of similar trans-actions in the particular market; and,when available, reports of similar trans-actions with the same customer. In the-ory, such reports would guide Pricing'sefforts to accept or modify the price re-quested and to produce the output-thetentative approved price. In reality, withinformation scattered in different com-puter systems, the guidelines available

138 HARVARD BUSINESS REVIEW

Six Sigma Pricing • TOOL KIT

to the pricing analyst could be quitepoor. Or the sales rep might requesta very quick turnaround, leaving littletime for a pricing analyst to carry outthis step effectively.

5. Communicate approval to sales office(Pricing). The input is the tentative ap-proved price from the analysis in theprevious step and any additional infor-mation regarding the order and cus-tomer. The output is the approved price.This should be the penultimate step be-fore the sales rep approaches the cus-tomer but, in practice, this could insteadbe the beginning of a prolonged nego-tiation between Sales and Pricing. Otherpeople may weigh in at this point aswell, and the final approved price couldend up quite a bit lower because of pres-sure from a manager or from a more se-nior sales or marketing executive.

6. Submit price to customer (Saies). Theinput is the approved price. The outputis the tentative price for invoicing thatthe sales rep submits to the customer. Atthis point, the sales rep should simplybe offering the customer the approvedprice. But this entire project was basedon the observation that the price thesales rep actually offered the customer,as indicated by the invoice from the sub-sequent transaction (if there was one),could be quite a bit lower than the ap-proved price.

Before moving on to the next stageof the project, the team assessed thequality ofthe input data that supportedthe pricing process. It would be difficultto improve the process if the currentsteps systematically produced faultydata. Moreover, the team needed to havefaith in the numbers on which it wasgoing to base its findings and recom-mendations. By examining representa-tive samples of data in detail, the teamwas able to confirm that the actual salestransaction data were by and large sta-ble and reliable, even though differentreports presented the information indifferent formats.

Analysis. Once a process has beenmapped and documented, and the qual-ity of the hard data supporting it hasbeen verified, the Six Sigma team canbegin the analysis. The team members

MAY 200S

usually start by meeting to identifythe ways in which people fail to act asneeded or fail to assert effective controlat each stage.

To aid in this analysis, the Acme teamused a common Six Sigma tool calledthe Cause and Effect (C&E) Matrix toguide discussion. With the help of theMaster Black Belt, the project managerheld a workshop using the tool to iden-tify problems and put them in order ofpriority. The rows on the C&E matrixlist ail the steps in the current process,and the columns list all ofthe require-ments a particular process customer hasfor the entire process. Each requirementis then weighted according to howimportant it is to that customer. (Seethe exhibit "Which Steps Matter?") ForAcme's team, the customers were seniorexecutives who wanted better controlsin the pricing process and, eventually,better price performance.

The team did not actually assignnumber scores. Instead, members usedthe structure of the matrix to focus on

possible causes for lack of control ateach step. The process diagram was pro-jected as a slide, and team membersused a whiteboard to discuss each stepin turn. The main findings from this ex-ercise suggested that the defects aroselargely from problems in steps 1,4, and6, and from failures in reporting.

- Step I The team found that the abil-ity of the sales reps to help customersselect the right products, and the rightfeatures for those products, was criticalto managing customers' price expecta-tions. Unfortunately, salespeople's fail-ures in assessing customer require-ments could not be easily detected andcontrolled.

• Step 4. The key constraint here wastime; sales reps sometimes wanted dis-count approval vnthin hours of for-warding a request, which made it diffi-cult for pricing analysts to work outwhether or not the discount was rea-sonable. Giving Pricing more time foranalysis would make it easier to reducethe incidence of defective prices.

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TOOL KIT • Six Sigma Pricing

• Step 6. Sales reps sometimes offeredfinal prices to customers without priorapproval, leaving Pricing with littlechoice but to OK the price after the fact.The team agreed that such situationsshould be tracked.

• Reporting. Information about trans-actions was not gathered or presentedin a consistent manner. The unit's vari-ous functions generated more than ahundred different transaction reportsthat summarized sales data by productline, market, and other ways at weekly,monthly, or quarterly intervals. Dis-crepancies and redundancies in thosereports led to variability in the deci-sions analysts came to in deciding prices.This meant that managers could neithertrack pricing defects easily nor obtainthe data they needed tor Step A in time

to do adequate due diligence on pricequotes.

After completing the C&E work-shop, the project manager did a stan-dard statistical analysis of transaction-level data for all of the individualtransactions that occurred in the twoyears before the proiect started. As theexhibif'What Are We Really Charging?"reveals, he confirmed that actual trans-action prices were distributed alongnormal bell-shaped curves around theaverage transaction prices. But he alsodiscovered distinct bell curves for dif-ferent transaction sizes: average dis-counts increased the higher the list priceof the transaction. That indicated thatmany customers were willing to payhigher prices for smaller transactions,suggesting that pricing guidelines could

and should be differentiated for different-sized transactions.

In addition, the analysis revealed thatsalespeople serving certain territorieswithin the same market had a greatertendency than their colleagues in otherterritories to invoice at prices eithersignificantly higher or lower than ap-proved. The team concluded from thisanalysis that different pricing guidelinesneeded to be set not only for differenttransaction sizes but also for different ter-ritories within the same market and pos-sibly even for different customer groups.Pricing guidelines had always been mar-ket specific but were not differentiatedby transaction size, by territory, or, forthe most part, by customer group.

Improvement The results from theanalysis created a lot of positive buzz

WhichStepsMatter?

The Cause and Effect Matrix is one ofthe basic

toolsof any Six Sigma project. It is a systematic

way to judge the impact of each step on the pro-

cess's customers (whether internal or external)

as a prelude to prioritizing underlying problems

and identifying their causes. In this example,

we've filled in two steps, and senior management

is the customer.

3, Describe each stepin the process.

1. List the customer'srequirements for theprocess as a whole.

4. List all ofIts Inputs.

Customer Requirements

Maintainmarketshare

Increaseaverage

transactionprice

Improveand

maintaincontrol

ProcessStep

Perform initial price as-sessment with customer

^ Submit price approvalrequest to Pricing

ProcessInput

Importance of Requirementto Customer (score 1-1O)

8

Customer's requirements;price guidelines for Sales

importance of Process Step /to Requirement (score l- iOf

2. Rate how important eachrequirement Is to the customer.

5. Rate the effect each step has onthe customer requirement

StepTotal

0

7

135

846. Multiply the importance

rating by the efFect scorefor each step. Add acrossto get a score that indi-cates how important thestep is for meeting thecustomer's requirements.

140 HARVARD BUSINESS REVIEW

Six Sigma Pricing • TOOL KIT

among Acme's senior managers. It wastime to recommend modifications to theexisting process to decrease the numberof unapproved prices without creatingan onerous approval process. Responsespeed was critical for salespeople so theycould continue to act quickly and closedeals. But this was a challenge for pric-ing personnel. What they needed, theteam concluded.was clear guidelines tohelp them decide when they should orshould not approve any deeper-than-usual discounts that Sales had requestedor promised to customers.

So the team proposed giving gradu-ated discount approval authority toindividuals in three levels ofthe organi-zation's hierarchy: sales reps or manag-ers, pricing analysts, and the pricingmanager. Finally, at a fourth level, topexecutives could continue to approvediscounts without any limit. So, for ex-ample, in one particular market for atransaction size between $ioo,ooo and$150,000, a saies representative couldoffer any discount up to 30%, but to beable to offer an even lower price toa customer, he would have to contact apricing analyst for approval. She wouldfirst check against the guideline pricefor that region, type of product, trans-action size, and perhaps other criteria,and use this to negotiate with the salesrep any further discount, up to 35%- !fthe sales rep felt that the situation de-manded an even lower price than theanalyst could authorize, the requestwould be elevated to the pricing man-ager, who could approve a discount ofup to 40%. If the salesperson was goingfor an even lower price, the request waspassed up to a specified group at the topleadership level, which alone could ap-prove a higher discount. Making boththe guidelines and the escalation pro-cess clear made the process more effi-cient and faster.

In cases where sales representativeshad already offered a customer a priceand needed post hoc authorization, thenew process required that the rep in-volve his boss, who would have toe-mail or call Pricing for approval. Theprice already offered would still be hon-ored, but now reps could be held more

accountable for making unauthorizedcommitments.

The new distribution of pricing re-sponsibilities required a process for de-veloping-and, from time to time, reeval-uating - all of the discount limits. Toensure that limits did not become out-dated, the team created a spreadsheettool that let Pricing work off recenttransaction history.

The team also created exceptioncodes that enabled Acme to track thereasons for variations in prices. Thecodes made it clear who had been in-volved in the decision to deviate fromguidelines. For instance, if someonefrom the leadership had approved adeep discount, the eventual transactionwas tagged with a Leadership Approvalcode. If Acme needed to match a com-petitor's aggressive price, the pricingmanager could approve a low price that

was tagged with a Competitive Matchcode. If a sales rep had already promiseda price to a customer before gettingapproval, the transaction would haveto be tagged with a Sales Error code.What's more. Pricing would now have24 hours to do due diligence beforeapproving a price request, and Acmetracked which sales reps consistentlyasked for extra-fast turnarounds.

Control. In the final stage of a SixSigma project, the team creates controlsthat enable the company to sustain andextend the improvements. Acme set upa monthly review at which executives-mainly the vice presidents of market-ing, sales, and finance, along with theirdirect reports - look at the company'soverall performance and at particulargeographic markets and transactionsizes to see if the new process is indeedresulting in higher average transaction

What AreWe ReallyCharging?

At Acme, analysis oftwo years* sales data showed thatthe

higher the list price, the deeper the mean discount tended

to be. For large transactions with list prices in the $200,000

range, for instance, the mean price negotiated with the cus-

tomer was 50% lower than list, For transactions in the $5,000 range, the

mean price Acme actually charged was 60% ofthe list price. This suggested

that Acme could improve average prices by differentiating the pricing

guidelines for transactions of different sizes-precluding deep discounts,

for instance, on small transactions.

120

100

80

B 60

40

20

liY

-*-

\

-V—

AV

Transaction Size

^ ^ 5 5,000— 10,000. ^ ^ 20,000. ^ - _ 50,000

100,000^ ^ — 200,000

27% 36% 45% S4% 63% 72% 81 %

Transaction price as a percentage of list price

90%

MAY 2005 141

TOOL KIT • Six Sigma Pricing

prices, fewer exceptions, and no loss inmarket share. If prices are under con-troi but the company is iosing marketshare, it might be a sign that Acmeneeds to review its pricing guidelinesor the way sales reps are managingtheir territories. If the review group no-tices that a particular sales rep is fre-quently making Sales Error transac-tions, the rep's boss will take a closerlook at how that person is negotiating.And if the review group sees that trans-actions of a particular size regularly re-quire the pricing manager's approval,the group would instigate a reexamina-tion of the pricing guidelines for thattransaction size.

The PayoffThe initial goal of generating half a mil-lion dollars in incremental revenuesin the first year was handily exceeded inonly three months. More important, fol-lowing a subsequent across-the-boardlist price increase, the average transac-tion price for the pilot product line wentup by slightly more than the list prices;in other words, the increase was fullyreflected in the top line. But other prod-uct lines realized less than half the in-crease. That list price increase, together

with the tighter controls the Six Sigmateam developed and implemented, re-sulted in the $5.8 million in incrementalsales in just the first six months follow-ing implementation going straight tothe bottom line.

From an organizational perspective,the Six Sigma approach has consider-ably reduced the friction inherent in thePricing-Sales relationship. The exerciseof systematically collecting and analyz-ing price transaction data gave pricinganalysts hard evidence to counter themore intuitive claims that the sales staffhad typically advanced in negotiatingdiscounts. A frequent refrain, for in-stance, was: "My customers want justas high a percentage discount for a$3,000 transaction as they would getfor a $300,000 one." Now that Pricingknows for certain that Acme's custom-ers tend to accept lower discounts onsmaller transactions and that some cus-tomers are willing to pay higher pricesthan others, analysts can more easilypush back when negotiating price ap-provals with sales staff. They can re-spond confidently and authoritativelywhen sales reps ask questions like"Why is my authorized price higherthan those in another market?"or "How

come we don't authorize the same pricefor all customers?"

Salespeople, for their part, are lesslikely to feel that the negotiation withPricing is driven by political motives orby a purely personal desire to assert con-trol, and they can, of course, use thesame data to press their own points. Itbecame clear, for example, that somesales offices that had previously beenunder scrutiny for aggressive pricingpractices had in fact been acting per-fectly reasonably given their local mar-ket conditions.

In light ofthe project's success and itslow cost, Acme is rolling out Six Sigmapricing across the entire organization.Other companies operating in competi-tive environments can also benefit fromAcme's experience as they look for waysto exercise price control without alien-ating customers. They can transform thetenor of the relationship between theirpricing and sales staffs from adversity torelative harmony by giving them a pro-cess for making joint decisions that arealigned with company objectives andbased on solid data and analysis. ^

Reprint R0505HTo order, see page 155.

"Go ahead-ask me anything."

142 HARVARD BUSINESS REVIEW