10 fears that stop you from optimising your prices

What is Price Optimisation?

Price Optimisation [Optimization] is the use of mathematical analysis by companies to determine how customers will respond to different prices for their products and services. It is also used to determine the prices that companies believe will best meet their main objectives such as maximizing profit.

The term “pricing optimisation” has come to the fore in recent years with technology companies promoting the key capabilities of their pricing software.

 

 

Pricing decisions made hastily without sufficient research, analysis, and strategic evaluation can lead to lost revenue. Prices set too low may mean your company is missing out on additional profits. Attempts to raise an initially low priced product to a higher price may be met by customer resistance. Prices set too high can also impact revenue as it dissuades interested customers from purchasing the product. Setting the right price level often takes considerable market knowledge and, especially with new products, testing of different pricing options.

So, what are the main fears that prevent you from optimizing your prices?

 

1. YOU FEAR LOSING BUSINESS BY RAISING PRICES.

What to charge for your products and services is a constant concern. The only true way to know what you should charge is by testing - but there's always a nagging fear when it comes to raising prices. However, the quality and accuracy of the price-points themselves can mean the difference between winning or losing business. In an extremely competitive market, having the “right” price is essential for top-line growth and bottom-line performance.

Of course, you don't want to charge more than your competitors but if you provide a valuable product or service, you should never be afraid to charge a fair and profitable price.

 

2. HOW DO YOU CHARGE THE RIGHT PRICE FOR WHAT COULD BE THOUSANDS OF DIFFERENT DEALS/PRODUCTS/CUSTOMER CIRCUMSTANCES?

A price matrix is the solution - it generates a set of structured “cells” - e.g. customer size, sales region, and industry vertical. Various combinations of these dimensions produce thousands of unique cells. Appropriate price points are assigned to each cell in the matrix, and invoice prices are fetched from the matrix cells at the time an order is placed. This approach permits much more precise and targeted pricing than old-fashioned 'one-size-fits-all' price lists.

 

3. ARE YOU CONCERNED ABOUT SHRINKING MARGINS?

You need to up your game on pricing decisions - and get creative firstly on your pricing methods and secondly with your value propositions. Issues about your pricing methods are critical to your profitability and need to be tackled head-on. Do you leave pricing decisions to individual salespeople to do in their own way? This could be a major flaw. Pricing can be complex, and inconsistency doesn't help.

 

4. YOU DON'T HAVE THE COMPLETE PICTURE ON PRICING

Perhaps you think you already segment your market by customer size, product line or geography? Do you consider all these categories equal in importance when seeking an optimal price? Without understanding which attributes drive pricing behaviour however, companies are left with an incomplete picture of how to price accurately.

 

5. DO YOU FEAR YOUR SALES FORCE WILL NOT USE PRICING OPTIMISATION SOFTWARE?

It's essential that there's some flexibility built into pricing procedures. Pricing software should be able to handle exceptions for specific customers and allow overrides in the negotiation process - whilst staying within agreed guidelines. This will allow for the best judgement of sales reps in the field, encouraging them to adopt and embrace pricing optimisation.

 

6. DO YOU BELIEVE YOUR POLICY-BASED OPTIMISATION IS GOOD ENOUGH?

Pricing managers typically use “rules of thumb” but a lack of sturdy tools prevents them from being uniformly applied. Sometimes pricing software tools only automate existing manual processes, they do not fully exploit the potential of pricing optimization You are not optimizing prices if you cannot prescribe target prices for individual customers

 

7. DO YOU RELY TOO HEAVILY ON HISTORICAL DATA?

Business Intelligence tools have given companies the power to analyze large volumes of historical data. Looking backward to your data however is no longer enough. Today's dynamic markets are crammed with volatile costs, fluctuating demand and evolving competition. Pricing Optimization technology must be able to analyze trends in pricing and forecast where prices are heading - not where they’ve been - in order to accurately set future prices and therefore maximize profits.

True pricing optimization technology goes beyond the automation of simple rules and provides detailed, customer-specific price recommendations based on all available data, not just the historic. How well does your optimization software organise pricing information? It should also analyse and prescribe what prices should be charged for a particular customer or market. Specificity is key.

 

8. DO YOU FEAR GIVING CUSTOMERS IN THE SAME 'SEGMENT' A DIFFERENT PRICE?

Once customer segments are determined, some pricing optimization software recommends the same price for every customer within that segment. However, this kind of “one-size-fits-all pricing” is unprofitable. Within segments, it's important to distinguish individual customer’s Willingness-to-Pay by analyzing how differently they respond to your service/product, marketing and salespeople. Innovative pricing technology today can actually analyse an individual customer’s Willingness-to-Pay and consequently deliver huge dividends.

 

9. DO YOU BELIEVE PRICE OPTIMISATION REQUIRES LOSS DATA?

Many business professionals have been led to believe that without access to prospect/customer loss data there can be no accurate determination of market pricing. However, most organisations do not track loss data today. Even if loss data is available, it is usually unreliable. Your sales force should be concentrating on winning deals, not worrying about losses.

Loss data is not necessary to generate useful and accurate pricing optimisation results. By analysing and calculating win data the vast majority of businesses can optimize prices to maximize margins and profitability. Knowing at what price point you win profitable business with a specific customer (win elasticity) is the critical piece of information necessary to determine optimal prices.

 

10. DO YOU BELIEVE THAT PRICE ELASTICITY DOES NOT EXIST IN B2B MARKETS?

The best chance of winning new business is expressed through win elasticity which looks at the probability of winning someone’s business at various price points. Only pricing optimization software can determine win elasticity and enable you to balance winning the business at the maximum profit level.