2020 Challenges to address for effective pricing
As companies are getting ready for 2020, key questions facing senior leaders is how can the Pricing lever be used to support my 2020 business growth ambitions? How can we better manage and capture fair share of the value we create for our customers?
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.
François Delvaux, Thomas Donck – Partners at Minds&More
Here are some common challenges we often see companies facing when it comes to Pricing and Value Management that should be avoided when determining their 2020 plans and their 2020 commercial strategies:
A. Not understanding well the value that their product or service create for their customers
Companies need to determine first what is the value (be it emotional or economic) that their product services create for the customers they serve or want to attract. For different types of customers it can be that your company can create different levels of value. Ideally your company should address these four questions:.
- Do we understand the value drivers of customers and how our product and services create value?
- Do we know what are the competing alternatives that our customers use today?
- Can we quantify the value we deliver (positive and negative) to our customers?
- How does value vary across customers?
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.
B. Market mis-perception 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. Tips for companies;
- Communicate well our value and to those where it is valued
- Manage value and price perceptions and customer behaviors
- Evaluate differences that may exist between perceptions and reality and adapt your communications tactics
C. Misaligned offer and related prices across 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.
D. 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 realized by the direct force or indirect sales channels. There is also a risk of having excessive or unnecessary discounting, jeopardizing the integrity of prices charged to similar customers buying the same volumes.
- What are the guiding pricing policies to protect our value and the offer?
- Price transparency
- Defined rules and decision rights
E. Effective price execution and Pricing controls.
Ensure that the customer facing teams execute pricing as per the defined the strategy.
- How to avoid price leakage (when give unnecessary discounts, not charge for services, not apply target or list prices)
- Ongoing pricing analytics to understand where there are missed opportunities and what is driving these leakages
- Tactics to address outlier customers or commercial behaviors
Two additional factors to keep in mind for 2020
Do we have internal alignment on the Pricing objectives within our 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.
Do we have gaps in capabilities and enablers in managing our Pricing and Value
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 and tactics, keep in mind these elements and if not addressed could limit the success of your business growth strategy.
Contact our team of pragmatic experts in value based pricing, price management and value management at Minds&More – and discuss ways we can help your business apply the pricing or value levers to support profitable growth in 2020.
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