As winter is coming to an end in the Nordics and spring is drawing nearer, I have been filled with anticipation of the rapid changes this turn in season creates. Every day something new is happening. You spot the first coltsfoot of the year. New migratory birds are appearing. Change is everywhere and happening rapidly.
The same transformation occurs in business, but the cycle is much faster. The business environment is going through accelerating change every day and even every hour.
Pricing agility is the key to staying on top of the competition. There are a few key elements specific to pricing agility that help build the foundation for you to always be one step ahead of your competitors.
Having a clear strategy is fundamental in an ever-changing world. It is a compass to guide the many tactical decisions needed in quick succession. Your strategy will also provide direction on what you should not do. In a fast-changing market, new imperatives appear on a frequent basis. But only a fraction of these will be worth acting on.
Your strategy is the ultimate guide on what to work on and what issues to ignore. Specifically, you need to have a clear pricing strategy to make the right decisions when the pressure is on. For example, knowing if you are acting as the price leader or follower in your market is a crucial decision for success in pricing. A pricing strategy should be your stabilization element. When all the things around you change, you need to trust that you have selected the right plan and act accordingly.
One of the best ways to stay on top of the changes happening in the market is very simple – stay very close to your customers. Customers can give you an advance indication of your market’s changes.
You need to select the correct quantitative metrics and not get distracted by non-essential metrics.
The best way to do this in B2B business is to combine the qualitative and quantitative elements that you can learn from customers. Qualitative characteristics need some additional effort to formalize and record in a systematic way.
You need to select the correct quantitative metrics and not get distracted by non-essential metrics. One potential qualitative source is your customer’s sales team, as that can get you insights from your customers’ customers.
Any insight from here can set you apart from your competition by allowing you to be adapting earlier to the changes in the end market. Easier to use, direct, quantitative metrics from your customers are commonly available through modern CRM and ERP systems.
Information from your customers is not enough. You need to use as much relevant data as possible to inform your pricing decisions. The amount of data gathered and processed needs to be balanced with the quality of the data. A large amount of bad data is not much better than having no data at all.
Collecting and using data is ubiquitous in pricing, so to beat the competition? Think about what information you could use that your competitors would not be able to access or think of using in price-setting. Can you bring in additional data on top of the traditional sets used in pricing like transactional, competition, customer master, and product data? What data source could you be using to create an unfair advantage?
What next when you have a strategy, insights to your customers, and data available? The best way to put these resources into use in pricing is to create pricing experiments to test various hypotheses and scenarios. Try out new price differentiation in business segments where you see a potential for new volume or margin, for instance.
The key element in testing your pricing is to enable comparison of two groups to validate the impact and better evaluate the influence of external factors on the results. Pricing experiments should be part of any pricing organization’s work. If you stop experimenting and innovating while focusing on management and administration of pricing, competition will quickly overtake you.
As business becomes more fast-paced, you need to be able to execute, analyze and implement the results of your pricing experiments in an ever faster cycle. This is where technology can help, streamlining and automating the process.
Modern pricing technology can also provide insights on relationships that can not realistically be detected through a manual approach. You must select the proper technology support that will address your most significant business needs and then continuously improve and re-evaluate your needs and supporting technology.
A Checklist for Success
Creating pricing agility to adapt to ever-changing market conditions requires a thorough approach, but time and effort are usually limited. The checklist below can help you decide where to focus. This is the best way to prepare for a sudden cold spring night and make sure that this will not harm your business. How many of the points on the list can you tick off?
- Is your pricing strategy understood by your pricing, sales, and product organizations?
- Does your sales team regularly interact and learn from your customers outside deal negotiations? Is the information shared with the rest of the organization?
- Is your primary data set available and in good quality? Have you identified additional data elements that could be used and working towards collecting that data?
- Do you conduct regular pricing experiments?
- Do you have pricing technology that supports you in moving to the next level in pricing?