pricing-commitment-spring-evaluate

Spring is a Time For Pricing ‘Commitments’

Photo courtesy of SEBASTIAN WILLNOW/AFP/Getty Images. All rights reserved. Originally appeared in Financial Post Executive [on-line blog]

Spring is a time of renewal — in nature, but also in business. It’s an ideal time to revisit old practices, assess their efficacy and commit to refreshing what might not be helping the long-term interests of your business, including pricing policies and strategies.

Every year pricing makes the headlines; from Bank of America to Netflix and perhaps the most famous example, J.C. Penney, there’s a lot to be learned from the previous years in pricing. To make certain pricing doesn’t fall by the wayside this year, here are three pricing commitments (not resolutions) your company should add to its spring cleaning list.

Stop making reactive pricing decisions

Highly reactive pricing decisions increase the likelihood that your organization will become a price taker. When pricing is just a means of satisfying short-term objectives, you may find yourself constantly under pressure to offer deep discounts or risk lost deals and unhappy customers. It’s characteristic of a company stuck at Level 1 or ‘fire fighting’ – a company just setting out on the road to world-class pricing.

So this year make pricing a journey, not a destination. A journey requires planning. First you must decide where you’re going (set pricing targets). Then it’s important to determine how you’ll get there (develop a pricing strategy). Constantly monitor performance indicators to determine where adjustments need to be made, and when faced with obstacles and roadblocks, don’t lose sight of that strategy. After all, the targets, processes and feedback loops are only as effective as you are proactive.

Never underestimate your customers

If one size doesn’t fit all, neither does one price. It’s essential you understand your company’s value proposition in the eyes of different customer groups. Pricing segmentation is truly the backbone of pricing strategy and there are varied approaches — segment by product usage, order urgency or growth potential for starters. Use those groupings to identify high- and low-margin orders and consequently where true growth opportunities lie.

Can we really remember the last few years in pricing without mentioning J.C. Penney? The company is an example of what can happen when customers are misunderstood or segments are treated uniformly. In 2012, the retailer put an end to its popular in-store sales and promotional coupons. Instead, the company introduced a three-tier pricing program of everyday prices, monthly values and best prices. It sounds great in theory, but “fair and square” aside, J.C. Penney shoppers felt alienated and confused, and the retailer ended the year -28% in sales during peak season.

Stop compromising on value

It can feel like a vicious cycle if salespeople and employees aren’t committed — or worse yet, don’t see the value in committing — to pricing. After all, pricing performance demands accountability. Be aware of your sales team feeling frustrated, constrained or even burdened by unrealistic sales targets. When it comes to negotiating with customers over price, salespeople must have a clearly defined degree of variation. Although saying no can be difficult, it puts the focus squarely on your value-added offerings.

Consider the alternative: in 2012 there was an explosion of price-match guarantees, causing sales at many brick-and-mortar stores like Best Buy and Barnes & Noble to suffer (although some have shown signs of rebounding). Consider Best Buy for a moment. The company lost sight of what differentiated itself from competitors. With a decline in value-added programs like worry-free repairs and buy-back trade-in programs, no wonder price became the sole differentiator. It’s worth re-emphasizing — stop compromising on your company’s value.

Just remember, when it comes to pricing improvements don’t think of it the same way you do your resolutions to eat healthier. This spring, focus on pricing as an effective leveraging tool for company profitability and you will see measurable results this year.

 

Paul Hunt is the president of Pricing Solutions, an international pricing strategy consultancy dedicated to helping clients achieve world-class pricing competency. Paul occasionally publishes a pricing column in the FP Executive. He also writes for the Pricing Solutions Club.