As companies are getting ready for 2015, one of the key questions for senior leaders is how can the Pricing lever be used to support my 2015 business growth ambitions? Even a 1% improvement in price can have a dramatic impact on the bottom line and bring 3 to 4 times the impact on profitability than doing a 1% enhancement in cost management.
Here are some common challenges we often see companies facing when it comes to Pricing and that should be avoided when determining their 2015 strategy:
- The lack of internal alignment on the Pricing objectives within a company and between the different functions concerned. Not sharing the same definition of expectations and goals across the different functions involved in Pricing generates missed opportunities to enhance business performance. We sometimes even see different departments in companies having objectives that are in direct conflict and that inevitably result in missed opportunity to enhance profits.
- An ineffective Pricing governance or a lack of policies to guide Pricing in the field. This is generally due to limited visibility as to what is the true price realised by the direct force or indirect sales channels. There is also a risk of having excessive or unnecessary discounting, jeopardising the integrity of prices charged to similar customers buying the same volumes.
- Market misperception of the Pricing related to the value delivered. If your customers don’t understand the value of your products and services, there is a strong likelihood that they will push back on your prices.
- Misaligned offer and related prices across the different customers or segments served. Many companies fail to adapt their offering as they serve different customers who have varying value requirements. Some might want high value and will be willing to pay for this while some others want less value and seek for a different price. The “offering menu” concept enables companies to do it well but B2B companies generally don’t apply it consistently.
- A new product or service innovation that is not appropriately priced. Launching a new product or service presents many risks and companies have in general low chances of success. However when companies don’t properly understand the value of their innovation and don’t prepare the Pricing well, the failure rate of a new product rises sharply.
- Gaps in capabilities and enablers in managing Pricing. Companies have different levels of maturity when it comes to Pricing. We have observed that organisations that are building their own Pricing Capabilities and that have a senior management focused on pricing achieve better business performances.
While building up your Pricing Strategy, keep in mind those 6 elements that if not addressed could damage the success of your business growth strategy. Don’t hesitate to challenge us and tell us more about your experience on the topic in the comments’ section!