Pricing Strategy: Achieving Buy-In & Avoiding Pricing Pitfalls  – Transcript

HOST: Hi and welcome to the Pricing Solutions Podcast where we discuss news, articles and exchange opinions and ideas on different pricing topics. We’ll be talking about pricing strategy today. Joining us today is Paul Hunt President of Pricing Solutions. Hello Paul.

PAUL: Hi Ron.

HOST: So we’ve just talked about what makes a good pricing strategy, on the other hand what are some of the most common mistakes.

PAUL: So one of the most common mistakes is not getting the sales force buy in to the pricing strategy itself. If they don’t accept the pricing strategy or believe that it is connected really to the market, the customers needs and the understanding of the customer then they are not going to be able to execute it. So what you have a lot of the time is you have a sales force that is negotiating more aggressively internally than they are externally with the customer and that’s because the pricing strategy is not clear. They haven’t bought into it and the company has weak controls. And so what you really need to do, and this is the critical thing, is the socialization of the 4 C’s. When I talk about the customer insight, competitive insight, cost, capacity certainly those need to be socialized with the sales force. They need to understand the why behind the pricing strategy and once they understand that what we find is a lot of the time after we do pricing research studies on the consumer, the end users of products, and when we share that with the sales force, they walk out feeling much more confident and prepared to sell premium prices and capture those premium prices. And so that ability to share that information, make sure that they understand the strategy and what you are trying to accomplish makes a huge difference to the organization. So that would be the number one mistake that I would say I have seen over the years. Number two would be when there’s poor metrics aligning with the value of the offer. So what you have is a company that is charging for a product or a service but they are doing it in a way that is inconsistent with the value that they are delivering. So they might be charging too much, it’s possible they could be charging too little but they are bundling a group of products and services that really don’t make sense from a customer’s perspective and as a result you have really poor alignment in terms of the value that is being delivered with the price. And when that happens it’s almost impossible to capture your price or to execute successfully.

HOST: So are there any processes to prevent these mistakes?

PAUL: Yeah there’s a very specific process for developing your pricing strategy Ron. The first point is to start off with the 4 C’s which we’ve talked about in some depth. But once you’ve done the four C’s there are also a number of critical processes that need to be done. One of them is developing an understanding of your pricing power and we’ve developed something called the Pricing Power Assessment Tool and essentially it looks at 7-8 of the key criteria that assess where you’ve got pricing power and where you don’t because where you’ve got it you can raise prices, where you don’t you may have to lower or hold prices. So a measurement of pricing power is much more effective than sitting down and having a debate with everybody sharing their own opinion so bringing that process is very strong.

HOST: It goes back to the point about having facts behind your pricing strategy.

PAUL: That’s right, exactly. And sometimes, you know, the pricing power it may have facts but it may also have some perceptions but it has a better discussion about perceptions. Then we get down to the pricing strategy playbook. Which is essentially a graph that has two axes. The two most critical axes in your pricing strategy and you set out a series of plays for different scenarios that might emerge in the market. So if you have high cost fluctuation and you have low capacity of utilization you may have one strategy whereas if you have very low cost fluctuation and a lot of under capacity then you’re going to end up with a different pricing strategy. And so we can actually set out those strategies beforehand so that as the economy changes or your cost structure changes you’re not re-inventing the wheel every time and getting into a situation where you’ve got to sell ourselves on what our strategy is going to be. So those are some good processes that we would recommend.

HOST: You’re listening to the Pricing Solutions podcast. For more information, or if you have any questions you would like us to talk about. Please go to www.pricingsolutions.com