You keep tweaking prices but profits don’t budge

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You keep tweaking prices but profits don’t budge

Maybe you’re already doing all of this – analysing price-elasticity and customer value, continually tweaking prices and repackaging your offerings – without any improvement in your profits, brand value or sales. If that’s the case, it’s naturally understandable if you’re finding it hard to envision potential profit improvements of 15-20 percent by implementing strategic and customer-based pricing. But the question is – which methods and what resources do you use?

A lot can in fact be accomplished with relatively simple methods and internal resources. But the end results, and in particular the long-term effects of your efforts, are dependent on which tools, resources and methods are used. By using purely internal resources (i e your employees), you risk having primary attention focussed on internal processes instead of on the most critical areas such as customers’ willingness-to-pay and their perceived value of your products and services. In our experience, it is also difficult for a company’s personnel to keep an open mind and remain objective when probing their customers’ innermost thoughts and preferences. Their view of the company’s market and their analysis of customer feedback will tend to be biased. Quite understandably, they will have a preconceived idea of what products and services their customers want, how they want them and how much they are willing to pay for them.

Adjusting prices and offerings in order to secure a more profitable future for your company is often a tricky balancing act. There are risks and pitfalls that you need to be aware of. For instance, you must encompass your whole product and service portfolio in the analysis (which must include subsidiaries and relevant partner companies) so as to prevent price changes in one segment from invoking product-cannibalism or in any other way having a negative effect on another segment. Your brand must be protected and preferably strengthened. You must predict the long-term actions of customers and competitors that can be expected to result from the price change. And every possible cost and action needed to implement, manage and support the new pricing strategy, as well as the strategy’s potential side-effects, must be addressed in your budget and project plan.

Assigning parts of or the whole pricing project to external consultants has many advantages. They bring well-proven tools and methods into the project, as well as their experiences from different industries and companies. This will help speed up and enhance the creativity, innovation and goal achievement in your pricing project. In addition, external consultants start with a clean slate and will therefore have an unbiased approach to your customers’ needs, preferences and willingness-to-pay and will look at your pricing from the “outside”, which can be invaluable in managing a change process such as this. You can consequently rest assured that the focus will never deviate from the customer perspective or that internal events will affect the pace or resource prioritisation of the project.

By Anders Bley. You can reach him at anders.bley@pricegain.com or via phone +46 70 880 45 20.

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If you want to learn more about  Strategic and Customer-Based Pricing, and how you set optimal prices to achieve desired business results, please read our whitepaper on how to boost profits >> and how to get better paid for your products and services >>

You can also try our Profit Calculator to get a rough idea of how much your company would gain using strategic and Customer-Based pricing as a tool for improving business results.

Or call us on +46 8 792 06 65, or send an email, and schedule a meeting with us, so that we can explain how you can improve your profitability through smarter pricing.

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