Our key strategic challenge is to anticipate the future path of prices in the industry and maximize against it!
Effective pricing strategy is one of the most powerful tools for B2B companies to grow organically, increase their “stickiness” with clients, and generate higher margins. Despite the fact pricing is almost always the first profit lever, yet it remains under-developed in most companies.
We help companies to adopt the right pricing strategy considering the full context of customer insights, competitive analysis, and their own economic factors avoiding the situation that hold them back from realizing the full potential of pricing.
Some of the most important factors affecting pricing strategy are uncertainty and reputation. Due to various/objective reasons companies, especially those with local experience only, are facing uncertainty on different aspects:
- Don’t know what is behind competitors price strategy;
- Don’t know how much is market demand;
- Don’t know if competitors have typical cost or lower costs;
- Maximize profits (market meet demand expectations and competitors have typical costs)./arrow_list]
Instead of trying to get more information to dilute uncertainty market players start acting to deter the entry of new players creating high entry costs, or changing entrants expectations of post-entry completion. Limit pricing, predatory pricing, and capacity expansion change entrant forecasts of the profitability of post-entry competition.
Most of the time managers rely on their knowledge of the product and the nature of the market to estimate price sensitivity Comparing customer value with your business’s own economic figures, you can use price elasticity tools to easily determine the relationship between supply and demand.
Companies often overestimate customer sensitivity—and thus oversimplify pricing structures. In this regard we analyze each of your target segments, and what are they willing to pay for your product.
Each company has its own unique set of economic considerations that influence each purchase decision so we evaluate specific metrics, such as marginal cost, profit margins, and price structure.
In competitive pricing situations, the risk of price wars and commoditization can be significant. We are analyzing the entire value chain to identify what are the competitors that offer alternatives/substitute and what is the value of their product versus ours, and how have they priced their products over time.
Price wars harm all of the firms in the market regardless of who starts them and are quintessential examples of the war of attrition. Beside of price wars, many other types of interactions are a war of attrition.
TIPS TO OPTIMIZE PRICING:
- Discounting needs discipline.Discounting should not be random or discretionary.
- Promotions undermine discounts. They need to be targeted, carefully tracked, and supported by billing systems. And they must be temporary; otherwise, they become a discount.
- Bundling is a science.Bundling and cross-selling services can help win and retain clients—if you remember that not all bundles are created equal. They only make sense when two services are complementary and at least one of the services has low penetration but high potential.
Myths about the price
“Market price” is a myth. Existing tools can reveal just how diverse pricing can be and where companies may be missing opportunities to discount effectively, drive consistency, and capture greater value.
“Shrinking volume means lowering prices; growth means raising prices.”
Fluctuations in volume may not have anything to do with the price and more to do with other factors. In fact, you can still raise prices and realize profits, despite shrinking volumes. The media
“Simple, across-the-board price changes are easy and fair.”
By oversimplifying pricing strategies, companies can miss opportunities and sometimes create bigger problems. In any business portfolio, the customer’s willingness to pay can vary significantly—from product to product and from one customer segment to another—and across-the-board price changes may harm as many products as it helps. That’s why in these types of decisions; a de-averaged approach to pricing is the most successful.
“My sales force should set the prices because they understand the customers and really know best what prices the market can bear.”
While the sales function has a significant amount of customer insight, pricing shouldn’t be based on this perspective alone. There is a wealth of data, including market and competitor activity that should play a significant role in pricing decisions.
When pricing is centralized, companies can bring together data from across the organization—including finance teams, business units, and sales—to inform their pricing strategy and create guidelines for sales to use in the field. As a result, companies realize more consistent pricing and a greater impact on the business.