What are your targets when deploying your pricing strategy? Are you selling the value you deliver or are you being pushed by the market?
When it comes to deliver business value, focusing on your pricing strategy often is the best place to start. The right pricing strategy can often enable success but an unfocused pricing strategy can also hold you back. Obviously, different pricing strategies are designed for different purposes. But what is key is that you have a clear target with your pricing strategy. You need to be in control!
I often see pricing strategies that are based on competitor price information. When you are pricing your products based on what your competitors are offering their products, you need to make sure you have the right information available. If that’s by purchasing competitor information, scraping websites or by other means, it’s key that you can feel confident about the information you use. Is it the same information your customers see?
Have a clear target for your pricing strategy
You also need to have a clear positioning target. What relative price position would bring the most business value to you? You also need a clear strategy on how you would like to adapt over time in order to maintain the desired positioning. If not, there’s a big risk this pricing strategy would hold you back. If you’re not in the driving seat, you might be letting someone else dictate the prices you are selling your products for.
Value-based pricing is another great pricing strategy when you also are able to sell the value. Here your sales team needs to know the value proposition of your offering and they need to be able to communicate it to the customer to sell the price. But you also need to make sure that you can receive feedback on the pricing strategy from your sales team. If the communication is failing between the pricing strategy and the sales team, it will hold you back.
You also need to align the pricing strategy between different sales channels and markets. In today’s omnichannel world it is not always easy. There are always risks of sub-optimized pricing and risks of grey market imports.
In general, you need to be in the driving seat when it comes to your own pricing strategies. When you let someone else dictate your pricing or when you’re not able to sell the value it’s a big risk your price level will be drifting downwards. And your profits with it…
Do your homework and continuously improve
So what can you do? Like always, you need to do your homework. In a business context where the market price is key, you can use competitor prices as input to your pricing strategy. You need to make sure you have identified the clear positioning of where you want to be. The positioning should, of course, reflect the value your offering has in the marketplace and what business targets you have.
You also need to continuously evaluate the positioning, both by measuring where you are but also your relative success. In order to maintain the desired positioning, evaluate the possibilities of deploying dynamic repricing so that you can quickly respond to market price changes. When you are evaluating your positioning, make sure you can evaluate your win rates, conversion rates, or similar so that your decisions can become data-driven.
If the business context allows you to dictate your pricing yourself, a value-based pricing strategy often makes sense. As mentioned, you need to make sure you can sell the value you are offering. If you are struggling with this, make sure your sales team has the right support they need, and work on how you can differentiate your offering.
If you are distributing the decisions across multiple teams and markets, then a strong business framework to guide the business decisions can enable you to coordinate your pricing decisions. When combined with an efficient governance process, it can enable you to grasp the full business value.
The market can be tough, and sometimes you need to be defensive in your pricing strategy. However, I would still argue that your main pricing strategy should be to be focusing on your business targets. Make sure that you are in control of your pricing. Avoid unnecessary price wars or discounts. Be confident in your offering!