There are five essential capabilities your business must have in order to get your pricing right, and therefore maximise on profit.
1 Pricing Strategy
Whether you are a sole-trader or a global brand, a pricing strategy is at the core of all activities relating to the prices of a company’s products. It lays out the foundations of how you price your goods, therefore providing a framework of control. It also helps you to remain focused when deciding what activities to carry out to gain pricing intelligence. An example of a statement that you may add to your pricing strategy would be: “Our electronic products will
always be the cheapest amongst our four main competitors.”
Before determining your strategy you should ask yourself lots of questions. For example: What type of company are we?; Who are our customers?; Where do our products rank in terms of quality?
2. Organisational Management
This competency involves everything that influences pricing. It is how a company arranges its people, structure, and culture. Included in organisational management would be sales policies and staff training. An example of this would be training all sales employees on the organisation’s sales policies, such as a policy that dictates the maximum discount an employee can give a customer. This training helps to ensure that with each individual transaction, the product is priced in an acceptable range.
3. Pricing Execution
This involves all activities that lead to a product price. If organisational management is the training of the sales employees on the sales policies, the execution is the actual creation of these policies. Using the same example as above, this could be the decision to provide sales employees with the ability to discount a customer up to 10% before they have to seek approval from a manager.
Without the creation of a sales policy there is no guidance on what the price of the product can be to allow the organisation to still make a profit; and without the training there is no way of making sure your product is always correctly priced. If neither were enforced, there could be the potential for the sales employees to be offering customers with a 70% discount, which could leave the organisation making a loss. Obviously this is a situation every company wants to avoid!
4. Pricing Analytics
Analysing data is incredibly important in order to understand your profitability. Past data should be scrutinised over to identify trends as well as any issues, such as unprofitable products. Information gathered from data analysis can then be fed back into the other capabilities already discussed. Analysis will also help to identify price optimisation, which is the price for a particular product that gives you the most profit.
Obviously the amount of technology you want to use is dependent on how big a business you are and how much you can afford. But basic technology that enables all pricing information to be in one place can be affordable and it helps a lot with the pricing analytics.
Technology can also go beyond a database where you can create graphs and statistics on your pricing details. You can also use technology to gain vital pricing intelligence from your competitors. For example, the product Competitor Monitor provides alerts to our customers as and when their competitors’ prices change. So if their pricing strategy involves being the cheapest retailer of a particular range of products, this alert then gives them the opportunity to change their prices accordingly in a matter of seconds. By outsourcing this sort of work, organisations are able to save money, which has a direct influence on the prices they are able to charge for their products, as well as positively influencing profit.
It is no secret that pricing is a crucial aspect in business and it must be considered in depth. This list is not in any sort of order, as each competency is equally important. In fact, they all interlink and work with each other to help a company make the best pricing decisions possible. It should convey that pricing decisions are not a one-off, behind the scenes decision. Pricing decisions must use all relevant information gathered on a daily basis in order to maximise an organisation’s profit.