When faced with a challenging economy, many companies will turn to a survival mode where they are pursuing every pound of revenue at any cost. This approach can work in the short-term, but there are long-term implications that will create significant margin compression and a loss of profit. This is why companies should be looking at more strategic approaches to sustain their margins and remain profitable. A critical strategy to consider is effective pricing which will help address the problem, but this is traditionally underused. However, over the last few years, pricing has been gaining momentum due to these 3 key factors:
- Measurable results: successful pricing strategies have been proven to deliver value across all industries.
- Untapped opportunities: there is still a small number of companies that have realised the value of pricing.
- High return/low cost: companies are able to realise a substantial value with a very low investment.
If you are facing a hard economy, you need to know how a business can leverage pricing to sustain profits and increase revenues. There are 5 best practices that can help with this and you need to know what they are.
Focus On Pricing-Decision Support
Almost all companies will have invested in a CRM system. However, many of these companies will only use the part of the system which is dedicated to data collection instead of the decision support aspects. This means that companies are able to collect a lot of transaction and deal data, but they are not translating it into a deal and better pricing negotiations. An example of correct use will be a company that uses its transaction data to make informed pricing decisions such as targets, guidance and floors to support their sales teams when they interact with customers.
Segment Products and Customers
When companies approach their buyers, they will generally use a one size fits all model. This will not differentiate between the highly profitable customers with potential for future business from the unprofitable buyer with limited potential. Many companies will also not differentiate how their customers value the different products they have on offer. This is a weakness that needs to be acknowledged with training provided by the likes of GBS Corporate Training.
An example of this will be when product A is critical for the manufacturing industry, but it is not as important for the chemical industry. In this instance, the company should look at segmenting the product based on the end-use application. The pricing guidance created for product A for the automotive industry will be more stringent than the guidance for sale in the chemical industry because of the higher value it has to the automotive industry.
Arm Your Sales Team
When sales teams are interacting with customers, they will need to have critical pricing insights to help them make a real-time decision which increases revenues and profits. In many cases, discounts granted in a deal negotiation will be driven by the experience of the salesperson instead of their knowledge of facts regarding customer profitability, purchase history, expected product value and future potential.
When your sales team is armed with pricing guidance based on the customer profile, they will be able to tailor their negotiations on a case by case basis. This will ensure that they provide pricing terms which are consistent with profiles and with the company plans. Having sales teams which are fully armed with data will help them protect the profits of the company.
Improving Price Responsiveness
A timely price change can be the difference between winning and losing a deal because of the competitiveness of the market. The problem is that companies which sell thousands of products across regions, industries and channels will need to manage millions of price points at once. The ability of these companies to quickly fine-tune prices in response to volatility in the market will help them deal at decent margins instead of winning at a margin loss.
Invest in Technology
There are few companies that have made pricing one of their strategic priorities or made the investment to leverage it effectively. Many of the existing CRM and ERP systems will lack the capabilities to streamline this process. To help with this, price optimization and management solutions provide robust price analytics, deal negotiation and price setting functionality. These solutions can be integrated with CRM and ERP systems to improve your interactions with customers and your pricing strategy.