By: Kevin McCabe, MSc, Director of Pricing Strategy
3 Ways to Quickly Apply Your Pricing IQ
Being able to understand and manage your pricing from sales transaction data can be extremely overwhelming and complex. Once you get control over that, it will be a lot easier to deal with any requests, challenges and problems that come your way. With that being said, there are some ways to apply your Pricing IQ fast and easy to boost performance. Even if it takes the business a bit of time to get used to, the results can be very impressive.
Reduce or eliminate negative performance drivers
The best thing you can do is to remove all the elements that drive your net price into negative territory from your business. It’s important to reduce negative cost-to-serve customers and lower the administration complexity created by the number of SKU’s(stock keeping unit) and offerings. Once you start managing your CTS(cost to serve) and hidden complexity in your pricing, the performance results can be extremely impressive. Stay away from negative performance drivers like option proliferation, customer specify SKU’s, and un-categorized options and customization. These negative drivers come with hidden costs to administer and add complexity interpreting the pricing data. Worse, they frequently don’t result in higher ROS(return on sales) despite the flexibility they provide to closing some deals. If possible, observe these things in the transaction data and then filter them out to be addressed with the goal to lower costs.
Stay cool and learn how to manage your pricing decisions
There’s no denying that pricing pressure can be extremely harsh on your business. The best thing you can do is to find a way to eliminate pricing pressure naturally. And the way you do that is via following a few simple tips. Put discount rails on your best customers that drive top line revenue. Separate and lower discount rails on those that do not. Not volume, revenue. Do the same with your products. In case you get confusing customer or product results, think about how to split the business revenue and transactions by the difference in pricing decisions. Between, for example, channels or geography. A great way to apply Pricing IQ is to make better frameworks that allow you to measure and visualize current pricing as the business is organized in reaching the end customer and what you would like your pricing strategy to be. Every business manages pricing pressure differently, try to adapt and adjust your pricing adequately so you can isolate and avoid any possible problems. Price your value and then ensure the business values your price.
Stay proactive
Being reactive won’t build Pricing IQ, it will just lead to even more complexity to administer. What you want to do is apply Pricing IQ across the organization and adapt to the situation. Discuss pricing intensively and with collaboration tools. Then figure out which is the best way forward with the whole organization bought into the decision making process. Sometimes it will be an easy fix, other times it can be a huge change management or systems challenge. You should always focus on measuring and staying proactive on what pricing can contribute to overall performance. It’s easy to get distracted but actively improving pricing performance is what really matters the most.
As you can see, you can easily apply Pricing IQ if you have a clear understanding the performance drivers and can carefully manage every transaction in terms of profitably. It will take time to identify the best results but it’s certainly going to raise the business’s Pricing Intelligence to execute pricing well.
About Kevin McCabe, MSc in Management/Sloan Fellow
Kevin McCabe is Director of Pricing Strategy at Pricing Solutions and Global Revenue Management, Pricing & Product Management Expert.
- 20+ years experience helping build value and pricing capabilities in Fortune 500 Companies
- 50+ Projects completed for technology, data, manufacturing, FMCG, software and financial services companies
