Get Shift Done: Management
Based on my pricing strategy consulting experience, I’ve pulled together five aspects that differentiate the companies dedicated to pricing excellence from those that can only hope to catch-up. Although specific situations vary, I’ve noticed these pricing best practices time and time again:
- Understanding customers
- Focusing on value delivery
- Hiring the right people
- Tying pricing into wider decision making
- Pricing as a verb, not a noun
Understanding Customers
When salespeople are encouraged and empowered to get to know their customers, and what they want, well, it leads to the growth of decentralized knowledge that’s critical to sales success, but also useful to the rest of the company.
Marketing gains a better sense of how to talk about their products and where messaging has been unclear. Product gets to look beyond technical specifications to how customers are actually using what the company creates.
Dedication to understanding its customers makes a company more knowledgeable about the competitive landscape and better equipped to anticipate changing conditions.
The entire company feels less insular and more connected to its existential purpose: serving customer needs profitably.
Focusing on Value Delivery
It’s an old adage that customers are interested in what your product or service can do for them, not in what the product or service is. In other words, customers care about the value you provide above all else.
But it is surprisingly hard to find this concept implemented in practice within an organization. This is where understanding your customers comes into play: when you can speak in their language, and not just internal jargon, you can present your value clearly.
Conducting an Exchange Value to Customers helps organizations think about the benefits that their goods provide in concrete numbers. For example, your customer may sort of care that your product lasts twice as long as the competition’s, but they care a lot about the time and money they’ll save by using a more reliable product that requires fewer replacements.
What if you don’t know what your customers value? That’s a great reason to empower salespeople, as discussed in the first point above.
Another way is to have customers tell you themselves through “revealed preferences.” For example, if you don’t know whether your customers value placing orders with individuals versus an online form, offer a discount for using the one that is better for your company. You will start to get an idea based on how customers adjust their purchasing behavior.
Hiring the Right People
With the increasing number of technical solutions these days, it’s easy to forget how important people, the right people, are to your organization.
The people who interface with your customers are especially important. They’re the part of your company visible to the public. Getting a wider swath of the company involved in such activities will increase their investment in pricing decisions while increasing their engagement.
And, a customer can tell when your people are not engaged. Can’t you, when you’re the customer?
Tying Pricing into Wider Decision Making
Our engagements with clients frequently begin with in-person interviews with sales, marketing, finance, product, IT, and more. Without fail, we’ve found that one or more communication breakdowns between these teams is leading to under-utilized information or department working at cross-purposes.
One way to minimize these challenges is to establish a pricing council made up of leaders from any department with information to contribute to pricing decisions. In addition, participation by the chief executive is key so that decisions have heft across the organization.
The pricing council should hold regular meetings that review strategy, product positioning, internal processes, sales discounts and rebates, and any specific clients or transactions that need evaluation.
Without some type of formalized pricing council, internal communication is difficult. Pricing strategy affects and is affected by overall business strategy so the lines of information need to keep flowing.
This in turn illustrates the critical mental shift needed to address pricing actively and proactively: pricing as a verb, not a noun.
Pricing as a Verb, Not a Noun
If your company thinks of pricing as a noun, it treats it as a one-off event. You set the price of your product according to a gut feeling or to what your competition is doing, then mostly keep your hands off. Maybe you drop your prices if you hear that your competitors are doing so, and watch your margins shrink out of your control.
If your company thinks of pricing as a noun, it treats it as a one-off event.
For companies that treat pricing as a verb however, it becomes a proactive set of ongoing decisions. Competitors’ prices matter, but what’s more important is understanding the value you deliver to your customers.
Decisions cascade from competitive strategy through pricing strategy, market pricing, price variance policy, and price execution. All steps require routine analysis and alignment for your company to take full advantage of potential opportunities.
Our recent book, Pricing Done Right, helps walk executives through applying these lessons and many more to their own organizations. Every company is different, but the principles of pricing excellence stretch across all organizations and industries. Check it out, or drop us a line.
Originally published at: http://www.wiglafjournal.com/pricing/2016/12/five-pricing-best-practices-for-organizations/
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