Problem was, the sales force, mindful of the cost reductions, increased customer discounts by $260 million, more than wiping out the savings.

"In many cases, there was no competitive action that required those price discounts," says Matt Johnson, managing director of the Mountain View, Calif., office of strategy and marketing consultancy Simon-Kucher & Partners LLC. "The salesmen had margin targets, and when costs went down, prices were systematically vacuumed down to a cost-plus markup."

Johnson says the company, which he won't name, employed the kinds of self-destructive pricing practices and philosophies that are common in industry today. He says that in recent years, IT has made it possible to price smarter, but a company's culture and management often stand in the way of its use of the technology.

As senior vice president for revenue integrity at Seton Healthcare Network in Austin, John Elver has a job title that suggests he won't let others give away the store. Indeed, aided by new price optimization and contract management software, he boosted annual revenue by almost $200 million by improving the sophistication of pricing at Seton's 21 medical facilities.

Previously, Seton had taken a crude approach to pricing. It would, for example, raise the prices of all its 60,000 items and services by 4 percent and then manually tweak the prices of a few selected items. Now Seton uses the Hospital Optimization System from PROS Revenue Management in Houston to model the effects of more fine-grained changes. The pricing models, which analyze some 70 million historical transactions and take into account the terms of complex contracts, can forecast customer demand and the associated revenue likely to result from various pricing decisions.