Do you often have problems explaining irregular or inconsistent pricing? The bottom line is that if you don't regularly do a pricing audit/analysis it can lead to more discounting than is good for your company and inconsistencies in pricing that are hard to justify – and could be costing you money.
If you want consistency across similar accounts, to maximise your profitability and provide an external barometer for measuring prices against the marketplace, then a pricing audit is absolutely necessary – and will pay dividends in the short and long term.
Pricing audits also ensure that prices are matched against customer segments to ensure that those accounts that acknowledge value are also paying for that value. Often, the result of an audit is the discovery of hidden weaknesses, accounts that are costing you money - and that ad hoc informal analysis just can't detect.
If you implement effective value-based pricing strategies, your company can go after different market segments by delivering a variety of product and service offerings customised for each segment. It's a "win-win" situation!
So, how do you prepare for a Pricing Audit?
Define Your Organisational Goals and Objectives
The primary reason that pricing strategies fall short is because they may not be aligned with your corporate goals and objectives. Also, it might well be a struggle to maintain a uniform view of just what your goals and objectives are.
So, whether it's revenue growth, profitability, market share, return on capital employed, or some other measure, everyone in the organisation must be working towards the same corporate objectives if the right pricing strategy is to be determined.
Goals and objectives drive pricing strategies. Optimum pricing tactics flow from a clearly articulated strategy – and make sure they are communicated clearly to all concerned.
Review Current Pricing Practices
Review current pricing practices, discounts and incentives, customer segmentation, the competitive landscape, product bundling etc. throughout your business. The goal is to assess all areas within your company (systems, marketing, sales, finance, distribution, operations and others) that affect or are affected by pricing.
This process should include:
- Interviewing the management team
- Interviewing the sales team
- Reviewing pricing across distribution channels
- Benchmarking your company against direct and indirect competitors
- Analysing historical data
Define Weaknesses and Identify Opportunities for Improvement
Once the pricing audit is complete and data have been analysed, opportunities for improvement will be revealed. The number and extent of such opportunities will be directly related to where your company currently resides on the SPMG Pricing Pyramid. The Pyramid can also serve as a useful reminder for unfortunate price concession decisions made under pressure.
Who stands to benefit from a pricing audit?
Everyone! You will become more competitive and less likely to instigate a harmful price war by discounting heavily. Customers benefit from consistent interactions, pricing standards and your increased focus on fulfilling their needs.
Employees benefit from improved execution of their roles due to consistent streamlined processes, pricing rules, value leadership and better pricing training. Shareholders appreciate the higher profits achieved by an efficient pricing process that should capture the true value of your product or service.
Without a strategic and well-executed pricing audit, organisational objectives are difficult to achieve and potential profits are almost certainly being lost. A thorough pricing audit can make your organisation more competitive, lead to greater employee and customer satisfaction and enable consistent pricing that responds to current market forces, thereby maximising profits and achieving your organisational goals.
The Strategy and Tactics of Pricing, Tom Nagle and John Hogan, 2016
Pricing Strategy:tactics and strategies for pricing with confidence, Warren D. Hamilton 2014
Pricing With Confidence: 10 ways to stop leaving money on the table, Reed K. Holden and Mark Burton, 2014
Pricing Strategy: how to price a product, Bill McFarlane 2012
The Art of Pricing: how to find the hidden profits to grow your business, Rafi Mohammed, 2005