Times Are Good. Why Work On Your Pricing Strategy Now?

George Faris

When revenues are down, it’s clear that companies need a better solution. But how do you make a case for the value of a pricing strategy when revenues are up? While it’s easy to become complacent when business is good, remember that your competition is always coming up with new ways to gain market share.

The competitive landscape is constantly changing through mergers, acquisitions and the creation of new products, and that means what works for your company today may not work in six months. That’s why your pricing strategy needs to be part of a continuous improvement process.

The main element of a good pricing strategy is micro-segmentation that leverages customer, product and transaction attributes. These analytics allow you to apply pricing science that helps to identify each customer’s willingness to pay and price sensitivity. In some ways, it might be better to implement a pricing strategy when your business is up than when you’re struggling with price erosion and loss of market share. When business is good, it could be easier to determine your customer’s willingness to pay, based on availability of transactional data.

Some organizations might worry that implementing a pricing strategy requires a temporary slowdown or interruption in sales. Every situation is different, so it’s important to weigh the benefits against the possibility of an interruption. If you sustained an interruption in sales, would it be from customers who are buying low-margin or high-margin items?

In reality, you may actually see an increase in sales when you introduce pricing optimization. Improving your pricing strategy is all about small nudges in pricing optimization that make a big impact, and small adjustments in the top line could have a significant impact on the bottom line. The analytics capabilities should help you make small adjustments to your pricing strategies so that you avoid any slowdown. Ultimately, you want to keep high-performing customers at their current level and move underperforming customers to the middle of their segment.

Here are three tips for avoiding an interruption in sales:

1) Remember that pricing is a process: You don’t make adjustments on gut feel and knee-jerk reactions. Collect as much transactional and pricing data and competitive information as possible.

2) Use your data to make sound decisions: Analyze the data you’ve collected to help understand your customers’ behavior, price sensitivity and willingness to pay.

3) Focus on value, not price: The greatest goal with a pricing strategy is to price your products and services according to the value they provide to your customer. With proper sales rep training and a value-based pricing strategy you may see an increase in sales instead of a slowdown or interruption.

Pricing optimization is all about moving low-performing customers to the middle through targeted pricing, and taking high-performing customers even higher. Because your customers and the marketplace are constantly changing, it’s important to have technology in place that allows your pricing strategy to evolve as part of a continuous improvement process.

All of these little tweaks quickly add up: Improving your pricing strategy by one percent could impact your bottom line by 10 percent or more.

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