How did your business decide on your current pricing strategy? Was it just on the whim of the person who first set the company up, based on a gut feeling for what the product or service should cost?
In a recent survey of 270 companies, it was found that nearly half of companies priced based solely on just that. Only 17% of these companies revealed that implementing pricing was a team effort.
I've explained many a time that optimised pricing is vital to your overall business success. Your pricing strategy should be coursing through every aspect of your business as it affects almost every department, particularly sales, marketing and manufacturing. Senior management engagement is imperative to embed pricing at any company.
A Team Effort
Your pricing strategy, which includes your positioning, packaging, and price points, represents the total value your product delivers and should encompass all aspects of your business, from manufacturing and marketing to sales and customer support.
Therefore, your pricing decisions should be made collectively by all the key stakeholders in each of the different areas of your business, not just by your MD or marketing department.
A Dedicated Pricing Team
In a perfect world your business would have a team dedicated to all things pertinent to pricing. The specific number of people on this pricing team will vary according to the size of your company and its business aims, but is likely to include a strategic pricing manager in a leadership role.
She is your advocate for margin and profit management and strives to balance growth with profitability. The team may also include pricing analysts who analyse and interpret the results so that the pricing manager can make informed and insightful pricing decisions.
Sales and your pricing strategy are intrinsically linked, yet only a small percentage of companies admit they allow the sales team to have an input in implementing pricing decisions. This is worrying because your sales reps are on the frontline, interacting with your potential customers on a daily basis, so their insight into customer value perceptions is essential to a successful pricing strategy.
They are responsible for communicating your product’s value and justifying your prices to potential customers, so they need to understand the logic behind the pricing decisions to be more effective at their jobs.
Most companies project their expenses as a percentage of sales. Your sales team should therefore be familiar with your pricing strategy in order to create accurate sales forecasts, which in turn drives the rest of your business’ financial forecasts.
Excluding your sales team from your pricing strategy discussions could badly affect the rest of your company’s finance. Pricing is clearly an integral part of the sales process, which means that sales should be an integral part of implementing pricing decisions.
An essential part of marketing is understanding your customers, which makes this department an incredibly valuable asset to your pricing process. Your pricing strategy should rely heavily on the features and price points that are most attractive to your customers, which obviously requires your marketing team’s thorough understanding of your buyer persona profiles.
Your marketing team is also responsible for communicating and demonstrating the value of your product to your target market. They need to participate in pricing strategy discussions so they can establish a strong awareness of where the true value lies in your product and use that understanding to strengthen your positioning strategy.
Your product team built your product from the ground up, which means that they probably possess the deepest understanding of your product’s features and limitations. Manufacturing needs to be included in implementing prices so that your sales people are not overpromising on it’s capabilities or underselling its features.
Remember that the manufacture of a complex product might have taken many hundreds of hours. Including manufacturing into your pricing discussions/decisions can ensure that pricing is given the full attention it deserves.
Management’s ultimate responsibility in a company is to serve the various stakeholders involved with the business. This means it would be irresponsible for management to cut themselves off from the pricing decisions that are so critical to a company’s ultimate success. Harvard Business School studies have demonstrated a 1% improvement in pricing can generate up to an 11% increase in profits.
Pricing is the culmination of all the individual facets of your business, so the senior management responsible for the different departments of your company should all be involved in implementing your pricing strategy.
Include More People in the Pricing Process!
You should be collecting input from all of the departments in your business, as well as your customers, to determine your optimal price points and positioning. With something as important as pricing, it needs to be a concerted, coordinated effort.
Barely 1 in 5 companies use teams to price their product, which means you’ll have the advantage over 80% of your competition if you take the simple step of expanding the team involved in embedding your pricing.
Pricing with Confidence: 10 Ways to Stop Leaving Money on the Table by Reed K Holden and Mark Burton, 2014
Pricing Strategy: Tactics and Strategies for Pricing with Confidence by Warren D Hamilton, 2014
Pricing Strategy: How to Price a Product by Bill McFarlane 2012