You already realise just how important pricing is to your business success – but it's still easy to fall into a trap and just plodding along aimlessley with the same old, same old prices. Don't you know that this could be costing you real money, it could be the difference between success and failure? Have you woken up and smelt the price of the coffee yet?
With product life cycles shrinking, customers becoming more sophisticated and demanding, and tougher local or global competitors emerging in most markets, those markets are shifting at faster rates than ever. The payoff for getting your company’s pricing strategy right has never been more important.
Recognizing that one does, in fact, have pricing flexibility opens huge opportunities for improving profitable growth. Many B2B executives understand that pricing has a more powerful impact on the bottom line than other means such as gaining market share or reducing costs.
Yet, while companies dedicate ample resources to reducing costs or selling greater volumes, they rarely invest to the same extent in their pricing capabilities. As a result, they leave money on the table and leave the door open for competitors that understand better the power of effective pricing.
Here's what you should do to stop leaving money on the table:
1. Update your prices regularly
Markets change – but have your prices? If you are not regularly modifying those prices you are not accounting for any product updates/improvements, inflation – or even the odd referendum! Is your product really worth the same today as it was five years ago? If you've added significant value to your products then surely the price is worth a re-think? Remember, neglecting to update your prices can be very bad news for your bottom line.
2. Check your overall Pricing Strategy
Re-evaluate your pricing strategy. This doesn't necessarily mean that you'll need a huge overhaul but possibly a tweak here and there. After all, you could be overvaluing or undervaluing your products. You may not have access to a dynamic pricing model but you need to assess the effectiveness of your pricing strategy periodically – and make adjustments where necessary.
3. Think about Price Segmentation
Do all your customers pay the same price? That's a money-losing strategy if ever there was one.
I don't suppose that all your customers are identical so why would you ask them to pay the same price? Don't they have different needs, price sensitivities and uses for your products?
The solution could be to consider how you might segment your customer base into different groups based on any number of demographic characteristics – and charge accordingly.
4. Don't complicate things
Every company should strive to simplify its pricing data to make it easy to understand. Some businesses make the mistake of providing too many pricing options, while others make the mistake of providing too few. Charging one price for your product (although simpler) is almost always inadvisable as it leaves no room for your customers to upgrade and captures revenue at only one point along the demand curve.
A value-based pricing strategy is simple so you don’t need to rely on stupid pricing gimmicks to boost your bottom line. Make sure you keep honesty and transparency throughout the entire sales cycle – and forget the gimmicks.
5. Are you scared to raise prices?
Well, really it's about being scared of your customers – and their reactions!! Obviously you don't want to alienate them but there comes a time when things have to change. If your evidence supports a rise in prices then go ahead. Your customers are more understanding than you think, they know the score, particularly if you communicate the changes properly. They are likely to stay around if you are pricing on value.
6. Benchmark your business
Business owners often tend to think of what a product should be worth, not what it is actually worth. It's important to study the whole market and even more vital is to look at what similar products sell for in your immediate area.
This can be as easy a matter as observing competitors, and thinking critically about how your model compares to theirs. What volume of business do your competitors do? Is there a reason their product sells for what it does? This is called benchmarking, and a remarkable number of businesses fail to utilise this strategy.
7. Let go of bad ideas!
There's no point in being over proud - or shame in admitting a bad decision. You put something out there and it didn’t sell. Now, cut your prices, move the goods, and move on to the next product or idea.
8. Do you fully understand your value?
If you’re unable to understand what your company’s value is, how will you be able to communicate your value to your customers? Capture your value through price. A buyer will also attribute a value to after sales service, reliable/speedy delivery, quality, longevity as well as the brand. A strong brand gives the buyer confidence and enables companies to command a premium price even if the products are similar to the competition.
9. Provide your salesforce with up-to-date pricing information
When the sales team has a broad mandate without clear discipline, profits leak out. Your salesforce needs the flexibility to negotiate, but the typical approaches companies take can undercut effective pricing.
Equip your salesforce with business intelligence to make smarter pricing decisions, and install a clear, fast process for decisions that need approval.
10. Invest in Pricing Software
When your business has a lot of pricing exceptions and an ever growing price list, managing prices can easily get out of hand. With price management software you can make mass price changes within seconds and get rid of error-prone processes.
If you do not analyse your pricing, you will never identify areas where you are unnecessarily losing margin. With pricing software you can analyse your historical quotation data, and find anomalies and pricing trends from a customer, product and sales perspective. At the click of a button you can obtain recommendations to increase or decrease specific prices in order to either increase profitability or drive revenues.
Sloppy pricing is costing B2B companies millions. Set yourself and your company up for success by rising to the challenges that pricing poses - sooner rather than later. There is no 'holy grail' solution to pricing strategy that will fix all of your problems in one go, but investing in pricing software is a very good place to start. Recognize past mistakes and meet them head on to find a final strategy that is right for your business - then revisit that strategy often to fine-tune it as your business and your customers grow and evolve.
- The Strategy and Tactics of Pricing, Thomas Nagle and Reed Holden.
- Value-Based Pricing: Drive Sales and Boost Your Bottom Line by Creating, Communicating and Capturing Customer Value, 2011 by Harry Macdivitt and Mike Wilkinson.
- The Challenge of Value, 2010 by Harry Macdivitt and Mike Wilkinson.