The price is right at Hewlett-Packard.

• Position: Interview with Software Business Unit controller Steve Webb - International - Interview

Do you ever have a sneaking suspicion that your pricing might not be right on the money? If so, get some pointers from a financial executive who helped his company create a lean, mean pricing machine.

Recently, Hewlett-Packard took a long, hard look at its pricing methods and found that they no longer worked. Faced with a changing marketplace and product mix, the company opted to consolidate its pricing by adopting a global pricing initiative in November 1992. Steve Webb, controller of Hewlett-Packard's Software Business Unit, led the project and describes how the company accomplished this transformation.

Financial Executive: Can you explain Hewlett-Packard's pricing before the company's global pricing initiative?

STEVE WEBB: We split pricing responsibility and reported our revenue in two pieces. In addition, the base-product pricing was U.S.-oriented, while our international pricing was largely cost-based.

Each business that was responsible for a product established a base price for it that was usually identical to the U.S. list price. The international sales entities also used an uplift, which is added to the base price to recover the "incremental costs" of doing business overseas. Our internal reporting systems then tracked the two pieces of the price separately, measuring the sales entities, in part, by the cumulative international uplifts, which we called trading income.

In retrospect, these practices insulated the businesses from some of the complexities of international operations, and the decentralized pricing was appropriate -- or at least tolerable -- given the global environment in years past, when we sold big-ticket proprietary products through a direct sales force and had only a few multinational accounts.

Why did Hewlett-Packard decide to rethink these methods?

In 1991, we decided that we needed to change, primarily because the environment and our product mix both had changed dramatically. Today, we sell many more lower-priced, standards-based products to many global organizations, and we increasingly operate through resellers. Laserjet printers are a good example. When a company has significant price differences around the world, it's leaving itself open to arbitrage and cross-border buying. Even a $1 price difference in laserjet toner cartridge prices can shift a large percentage of worldwide purchases to the lower cost source. This would be very disruptive and costly for us. We -- not the geography -- must control the prices here.

At one point, our computer memory-board...