In most of the clients that our strategic pricing consultants engage with we sometimes see a company who is underpricing their business across the board. That is, in nearly every case the price is less than the threshold that the customer is willing to pay. One indicator is when your sales close rates are extremely high. You are essentially winning every deal and in some cases, your buyers even tell you that your pricing is very good.
While this certainly helps to achieve sales goals you are leaving valuable profit margins on the table. Furthermore, you may be contributing to margin degradation in your industry as competitors feel the need to match prices. So, how do you really know if you are underpricing across the board?
One approach is to conduct market research among your customer base to compare your customers’ perception of value on your offering versus your competitors offering. Having buyers rate and compare your delivered benefits to your competitors provides an apples-to-apples comparison on overall value. And, you will want them to score performance on pricing as well. When we then compare the performance of benefits versus price we have a ratio to measure how our value is perceived in the eyes of the buyer.
If your company’s perceived value rating is high it suggests there is room for price improvement. While this approach may not provide a granular view to price improvement targets it generally is adequate to identify across the board pricing issues. If you suspect that you are underpriced this approach can help to verify those suspicions and give the confidence to make adjustments.