During difficult economic times, many companies go into survival mode. They chase after every possible pound they can get and do so at any cost. This can be effective in the short term. The long-term effectiveness is questionable. Significant market compressions and profit loss are almost guaranteed to occur.
Companies must take on strategic approaches combined with good practices. This allows for sustained margins and more business. One part of a good strategy is effective pricing, but even well-established firms sometimes underestimate this. Over the past few years, proper pricing has received more momentum. This is due to three main factors:
- Measurable Outcomes: Proven successful pricing strategies have increased value in many industries
- Unrealised Opportunities: A few companies have truly seen the value of proper pricing
- Low Investments – High Returns: It takes a little for a company to get greater value
How can businesses work out their pricing to build revenue and sustain profits? The following five practices will help you and your company work to become more consumer oriented. Along with these five practices, a CMI qualification is a bonus as this provides management knowledge in the whole pricing process. Your company will see the rewards of doing this in the short term.
- Emphasise Pricing-Decision Support
Nearly every business has put money into a CRM system. Businesses use this software mostly to collect data rather than perform decision support.
Companies collect a huge amount of transaction data and other data that, when leveraged properly, translates into better pricing and smooth negotiations. For instance, a company can use transaction information to set informed price targets as well as guidance and support to sales teams. The team can then interact with consumers and carry on negotiations.
- Custom Products for Custom Customers
It is common to use a single pricing approach for all buyers. This approach does not differentiate between profitable customers with better potential for future business and those who only have limited buying power. Companies sometimes fail to correlate with how consumers look at all their products differently.
Product 1 could be critical to developing items in the auto manufacturing sector. That same product could be unimportant to a chemical company. In this instance, a company could segment the item by placing a focus on the end user. This allows them to change the pricing. If the item is going to the auto industry its pricing would have to go for less of discount because of having a higher value than it would to the end user for the chemical industry.
- Empower the Sales Team
Interactions with buyers require that your sales team have critical insights when making decisions about pricing to increase sales and raise profits. Discounts allowed during negotiations are powered by their expertise in negotiating rather than in their knowledge about the customer. Your sales team needs to understand the customer’s profitability, its purchase history, its predicted product value and their likely future potential.
When you can empower and inform your sales team with pricing guidance based on individual customer profiles, they can customise negotiations for each customer. When the sales team is informed it is better equipped to be profitable.
- Fine-tune Pricing Responsiveness
Today’s global economic climate is highly competitive. A properly timed price change makes the difference between getting a deal and losing it. Companies that sell a long line of products to different industries, channels and regions must handle millions of price adjustments at once. When they can quickly fine-tune prices amidst the volatility of the market they will succeed at getting deals at good margins. This is in stark contrast to winning a deal with little or no profit.
- Make Investments in Technology
Not many companies make pricing a priority. Even fewer make the investment needed to leverage pricing when dealing with different buyers. Existing CRM and ERP planning do not have all you need to smooth over your pricing strategies. To do this, you need to implement price optimization and price management together with options for negotiating functionality. Solutions like these can be integrated with your existing systems.