Thinking About Strategic Pricing? Just Get Started
The world of strategic pricing can be extremely complex. Consider the sheer volume of part numbers, markets, channels and different types of customers that exist in your business. Add the fact that pricing seems to touch nearly every function in an organization from marketing, to sales, to production (costs), to accounting, to customer service and even senior management for the really large deals.
Where do you start to leverage pricing from a strategic approach that leads to improved margins, revenue and improved competitive position?
Unless your company has the resources to establish a strategic pricing department complete with a Chief Pricing Officer and expensive technologies, which isn’t the most effective means of starting anyway, there are a number of first steps to getting your business moving down the road of strategic pricing. Here are some low cost, high impact steps that you can take in the short term.
- Pricing Leverage Awareness – Calculate the profit impact of a 1% price improvement to your business and communicate it to your management team. The average U.S. company will see an 11% boost in income with a 1% improvement in price realization. Once your team understands how a tiny price increase can dramatically improve margins challenge them to identify some easy steps to realize the 1%.We had one company simply add 1% to each quote. They found it easy to implement and customers barely noticed the change.
- Learn About Strategic Pricing – Spend just a little time reading a good book on strategic pricing. We recommend two books: The Price Advantage by Marn, Roegner and Zawada and Pricing Power by Dolan. Each of these books does a great job of introducing strategic pricing and provides easy analysis techniques to help you identify price improvement opportunities.
- Sales Team Alignment – The greatest challenge that you will face implementing any price improvement program will likely be the sales team. Sales reps typically push back on price improvement initiatives for fear of losing sales. We find that the well trained rep embraces price initiatives and companies that address the sales team early are significantly more successful. Have your sales team involved early in the process and provide pricing training that is focused on sales related pricing issues. A good program will return 10 times the cost. It will be the best money you ever spent.
- Create a Pricing Team – Assemble a team of product managers, marketing specialists, sales leaders and finance people to periodically meet to discuss competitive price threats, industry pricing trends, cost and margin trends and pricing data analysis. Bringing a consistent focus to pricing within the organization will focus more attention and help to advance the company’s skill set.
These are just a few of the many first steps to improving your pricing management capabilities. The key, as with any worthwhile initiative, is to just get started!
Contact a pricing expert at Price Point Partners to discuss how you can begin your strategic pricing journey. Call us at 330-342-0923.