Pricing is the reflection of everything you do as a business, from your product development all the way down to a link to your website. Nothing else defines your business and its products more.
As a pricing professional you already know the importance of pricing and it's effects on the overall success of your business. You know that getting the right pricing strategy will help drive sales, increase profits, meet productivity standards and enable your company to remain competitive. However, convincing senior management of the importance of pricing can be an uphill struggle at times.
Don't forget that senior management involvement in the whole process of your pricing culture is crucial. If they are championing the cause along with yourself then optimising prices takes on a greater significance than just being another project, leading to business confidence, new capabilities and transformational change.
So, how do you get senior management on board?
Well, they have to be convinced by you first! Do you display the characteristics of vision, strategic thinking and business acumen? It also helps if you are a good communicator with excellent inter-personal and problem solving skills. You don't have to be all singing and all dancing as a pricing professional but you should be straight-forward in outlook and a strategic planner. If you come across as flexible,confident, and competent senior management will be eating out of your hand in no time!
Pricing professionals should have the ability to see problems in the wider context. This is known as the ‘helicopter factor'. You need to provide senior management with answers to the following questions:
Where are we now? This will provide information about the competition, product or service ranges, market share and financial position.
Where do we want to be? This will assist in formulating strategies and setting financial targets for the company.
How do we get there? This will help evaluate different routes to overcome difficulties while trying to go all out towards success.
Which way is the best? This will underline the best routes to take for achieving profit goals. It does require adequate financial back-up as well.
Why Is Price Optimisation So Vital For Your Business Success?
You cannot overstate to senior management the fact that pricing is the lever that has the highest and quickest impact on maximizing profit – and numerous studies have shown just how powerful price optimisation can be for a business. This is because:
Pricing is a key determinant in the decision making process customers use to purchase a product or service
It is important to establish how much your target market will pay for your product or service.
It shows you how sensitive your customers are to changes in price.
At different stages of your product or service life cycle you may change your pricing strategy to suit your business needs.
A low price strategy can be used when launching a new product to encourage trial of your product or service, as well as gaining customer loyalty. Be aware that if your price is too low, your sales volume may not generate enough revenue to cover the costs associated with your business. People may also believe that the product or service does not offer value at such a low price.
A high price strategy can be used to generate profits to cover launch costs or your product or service may have a unique selling point. Be aware that if your price is too high demand will reduce and you may price yourself out of the market.
Price Optimisation and its Effect on Sales Volumes
One of the most obvious effects pricing will have on your business (and of which senior management will be all too aware) is an increase or decrease in sales volume. Champion the following strategies to them where appropriate: an increase in prices might lower your sales volume only slightly, helping you make up for decreased volume with higher total profits generated by higher margins. Lowering your prices can increase your profits if your sales jump significantly, decreasing your overhead costs per unit. In order not to scare senior management too much, test the market’s response to price increases by changing prices in targeted areas before rolling out an across-the-board price increase.
Price Optimisation and its Effect on Your Market Position
The price you set sends a message to consumers about your business, product or service, creating a perceived value. This affects your brand, image or position in the marketplace. Higher prices tell some consumers that you have higher quality products, or you wouldn’t be able to charge those prices. Other consumers look for low-priced products and services, believing they’ll get the quality they need at a low price. Senior Management need to be made aware of how your brand is perceived and where it stands in the mind of your purchasers.
Price Optimisation and its Efect on Your Market Share
Some businesses lower prices temporarily to gain market share from competitors, who can’t respond to/meet a price decrease. After consumers have had time to try your product and develop a brand preference or loyalty, you can raise your prices again to a level that hopefully won’t cause them to leave you. Senior management should be advised that this can only be a temporary solution.
Getting senior management on board in the pricing debate is essential to business success. You should all be working from the same pricing page, without conflicts on pricing decisions. This combined effort will have a dramatic impact on your profitability and improve responsiveness to market dynamics.
- Two Reasons Why Pricing is the Most Important Aspect of Your Business by Patrick Campbell
- How to improve your leadership and management skills – effective strategies for business managers, Meir Liraz 2013
- Managing Up, Harvard Business Review 2014
- The Importance of Correct Pricing For Business Marketing Success by Susan Oakes
- Value-based pricing: drive sales and boost your bottom line by creating, communicating and capturing customer value, Harry Macdivitt and Mike Wilkinson, 2011