4 common pricing strategy misconceptions

By Moira McCormick on June 4, 2015

One common theme we encounter, especially in business-to-business sales environments, that pricing is a passive activity. Prices may be set by the executive leadership, and then remain untouched until the next review date or major market change.

Pricing_Misconception.jpgWhen you look at many studies that show just a 1% improvement in price can materialise into a ten-fold improvement in your profitability, taking such a passive approach can be extremely costly.

This passive approach is often driven by a series of pricing strategy misconceptions. In this article we aim to touch upon four of them, alongside highlighting the reasons why the misconceptions should be addressed.

 
MISCONCEPTION #1: WE’LL LOSE CUSTOMERS.

A common push-back from the salesforce when a price increase comes into force is "but we'll lose customers to the competition".

This statement does have some element of truth, and with any price increase you are likely to lose some customers. However price is not the only reason your customers are buying from you. They are buying from you, because you provide them with a valuable service. If you differentiate your offering through marketing materials, or communicate further deep routed reasons for price increases, such as a desire to provide better customer service, or invest further in research & development, you will be surprised at how receptive customers can be.

On the flip side, it is important to take note of the value your customers are giving you. In raising prices and putting yourself out of reach for some smaller customers, it may be beneficial to your business as it allows you to focus and spend more time on winning the bigger deals. If you're selling to a big customer or a small customer, the sales cycle is typically not too disimilar.

 

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MISCONCEPTION #2: WE’LL LOSE OUR COMPETITIVE EDGE.

Pricing is not a race to the bottom, and whilst being aware of the market is a good thing, benchmarking your price against your competitors can be a slippery slope to business failure, especially when it is clear that your product delivers better value to your customers than your key competition.

Furthermore, the value your product delivers may be different in each market segment. By adopting a cost-plus pricing strategy across the board, whilst keeping things simple, is leaving money on the table.

Software applications can you help you quickly and easily analyse large data sets to find market insights, customer preferences and more, so you can differentiate your pricing and optimise your product and customer mix.

 

MISCONCEPTION #3:  WE DON’T HAVE A PROBLEM WITH OUR PRICING.

"If it ain't broke, don't fix it" is a common misconception. Often pricing reviews are implemented when your business is on the decline, and you're fire fighting, but what if you could grow profitability even when the going is good? Wouldn't that be nice?

Finding out how strong your pricing strategy really is, may require investment in pricing consultants or systems if you do not have the expertise in house. But often these decisions can be justified by a clear business case and strong return-on-investment. There is only one cell on your spreadsheet that truly matters, and that is profit. "More customers don’t mean a damn thing if you’re not monetising them properly".

 

MISCONCEPTION #4: IT’S TOO HARD.

Pricing is a difficult discipline to master. Just by visiting a Professional Pricing Society Conference alone, and you will see rafts of individuals who devote their entire careers to its complexities. You will not become a master overnight, but by taking regular steps, and being supported by the the rights tools to allow you to set, execute and measure pricing changes will really help. What do you get? More control. Increased efficiency. Greater profits.

 

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