You may have very good intentions to improve your margins through better pricing but just how do you go about implementing the changes necessary? Believe me, it doesn't just happen by chance - or, indeed, overnight. Effective pricing comes from both a disciplined and strategic approach and it's one that can be learned (you'll be pleased to hear).
You could become much more effective in your pricing by following the 8 tips given below.
- Set your specific goals
- Become the pricing leader
- Understand the needs of your customers
- Always deliver value
- Either price to win or price for profit
- Involve all your employees
- Strive to continuously improve
- Invest in pricing software
Set your specific goals.
These goals should not simply be targets for margin increase, which are affected by customer and product mix. Your goals should be expressed as targets for a) price increases and b) discount reduction - and they should be developed by setting the goals by customer/segment and by product.
Become the pricing leader.
You don’t have to be the biggest, most influential player in your industry to lead the way with pricing. All you need is the desire to research all your pricing options and be innovative. Pricing innovations often do come from the smaller, specialist players.
Understand the needs of your customers.
Don't just guess. It might take a little time to find out what exactly they want and what price they are prepared to pay but an understanding of their needs is the very basis of an effective pricing strategy.
Always deliver value.
Mentioned in many previous posts but this is a no-brainer option for both you and your customers. You add value to your customers so they get more for what they pay - and it increases your profits too.
Either price to win or price for profit.
On your most important products this does not necessarily mean that you should be the cheapest, just that your customers will be overtly price sensitive on these. Your prices should reflect both what you consider value and your customers' value assessment.
The price to value relationship will be scrutinised more on the highest volume, highest importance products. You will have more freedom to price higher on lower volume products and here you will be pricing for profit.
Involve all your employees.
In order to be effective you need your salespeople fully on board with your pricing strategy. They can certainly report back on what customers are saying. In fact all employees who have an interaction with customers will be able to provide valuable feedback on your pricing whether it's analysing ordering patterns and cart abandonment, identifying where customers are in price disputes over invoices, or quantifying the pricing complaints received by customer services.
Strive to continuously improve.
Pricing is an ongoing process; often your circumstances (and/or the market) change. Don't expect to get it right every time because you are often relying on hypotheses about how customers will behave. You must be diligent in your data analysis but not so inflexible that you are unable to adjust along the way.
Invest in Pricing Software.
Pricing Software gives you greater control over your pricing and allows you a distinct competitive advantage. It allows you to quote professionally, increase deal sizes, reduce errors and drive better pricing decisions.
How to achieve highly effective pricing
Getting your pricing right is a long game. If you make smart, strategic and well-executed decisions then you will be well on your way to better, more effective pricing.
Pricing for Profit: how to develop a powerful pricing strategy for your business, Peter Hill 2013
No B.S. Price Strategy, Dan S Kennedy and Jason Marrs 2011