Price transparency is a topic which comes up frequently in our discussions with our clients, with customers and in the media.
Regardless of your industry, it is easy to see price transparency as a dire threat. We can imagine doomsday scenarios of a “race to the bottom”, commoditization of otherwise high-value products and a market driven by “price, price, price”. At the forefront of that scary scenario is Amazon, a tidal wave that is changing the game for many B2C and B2B companies.
Comparing prices used to be a resource intensive treasure hunt, as customers perused catalogues, made tedious phone calls, and drove from place to place. In the Amazon era, making meaningful price comparisons is a real-time, click-and-look exercise which any consumer or professional buyer can do with a smart device and a WiFi connection.
The ability to obtain real-time prices with little to no effort or added cost is at the heart of the supposed price transparency threat. But as we learned in a recent engagement for a global electronics company, price transparency is a double-edged sword. Here are a few of the benefits which you can take advantage of to improve your pricing strategy and effectiveness.
Price Transparency Builds Knowledge & Reduces Uncertainty
Anyone who negotiates knows that a big uncertainty factor is what the opponents are bidding. In B2B markets, many of which are information-poor, the next-best alternative is the great mystery. Salespeople and managers traditionally rely on educated guesswork to get competitors’ prices or infer them from win-loss analyses of previous deals.
Price transparency mitigates all that. By making competitive prices accessible, competitors themselves can make their own price comparisons and get a clearer understanding of their relative market value. You know where you need to be, so to speak, and this can reduce uncertainty and inspire confidence.
Price Transparency Emphasizes Value, not Prices
When prices become clearer to everyone in a market, the value of each competitor also comes into sharper focus. You can define the value you add specifically, and quantify it in terms of prices more precisely, because you know where you stand price-wise versus your competitors.
You have a more solid basis for defining and quantifying what makes you an attractive, trusted, valuable business partner and what differentiates your products and services. This applies even in a highly competitive market where price transparency has driven price levels down to more uniform levels.
Price transparency can also help a premium business filter out its most price-sensitive customers, the ones who are least loyal and more likely to churn.
Price Transparency Forces You to Up Your Pricing Game
Knowledge is power, as the saying goes, but it is useless in business unless you wield it. Having insight into competitive price levels takes some of the art of pricing and injects more science. It is a Moneyball effect which demands different skills. Data-driven analyses increasingly displace gut feeling, and ad hoc pricing processes can become more structured and focused.
Price transparency may expose weaknesses in your value proposition. By definition, not everyone can be superior. In those situations, however, you can quantify your disadvantage and use that knowledge to find a solution. Do you need a better product or a different suite of services to provide a bigger benefit to customers? Or do you need to recalibrate your expectations for that market? That may sound negative, but price transparency has at least exposed the problem and given you a more solid basis for decision-making.
Example: Using Price Transparency to Power Value-Based Pricing
We recently helped a global electronics firm successfully capitalize on the positive effects of price transparency. Knowledge of its relative price position both helped and motivated the team’s progress toward Level 3 (“Value-Based Pricing”) on our five levels to World Class Pricing Excellence.
The company sells its products in numerous channels, but its biggest resellers are Amazon and specialty retail. Its customer base is also varied, ranging from the individual garage hobbyist to installations at small businesses, all the way up to large municipal and commercial buildings.
We helped them to align pricing and value communication across channels, and map list prices across multiple product lines, regions, and segments. We also helped them manage the complexity which results globally when you take foreign exchange, freight, and duties into account.
As we moved into implementation, the company devoted fewer resources to divining what their competitors were charging and more time to quantifying their own relative value and setting prices accordingly. They also set prices with greater confidence. Price transparency neutralized uncertainty, which is often the biggest barrier to sustainable, confident price management.
To secure these advantages, we also developed a roadmap to help them define their longer-term pricing opportunities, quantify them using a model, and support them through capabilities’ building.
Price transparency is indeed double-edged sword. It is a game changer, but it is a dire threat only when viewed under the old rules of the game. If you treat greater price transparency as a resource rather than a risk, you can find new opportunities to sharpen your value proposition and your segmentation. It demands more discipline around price management, and puts a premium on pricing “scientists” versus pricing “artists”. But the reward is greater confidence in both the precision and the effectiveness of the prices you set.
Are you looking for a theory and data backed pricing strategy for your company? Do you feel like you’re leaving money on the table? Please, get in touch. Our talented team of pricing consultants will be happy to discuss your business in more details, and let you know how we can help.