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Chief Evangelist at Pricefx. Started the U.S. entity. Brand ambassador, keynote speaker, author, pricing expert & podcaster.
Dealing with business in a virtual world calls for value-based pricing. The reality is that the professional environment — in pricing and in industries as a whole — is diverse, and learning how to adapt your pricing strategy is key to succeeding in a more competitive and informed future.
An important conversation many companies had throughout 2020 was how to adapt to the “new normal,” and as we continue this path forward, companies must pave a path to a “new future.” Through my time helping lead a pricing software company, I’ve found there are four strategies you can use to ensure your pricing remains competitive in that new future:
Listen to your customers.
Understanding what your customers value is a critical component of value-based pricing. The customer and their valuation of the goods and services you’re selling need to come earlier and earlier in all of your thought processes. Instead of looking within for answers, look externally, away from the company’s perspective, especially in the early days of building a solution.
To truly know your customers, talk to them and work to understand what they value to determine if your solution makes sense to build or tweak. Always consider how the value your customers receive varies based on who they are and how they use your products and services, which is the basis for segmentation of pricing and offers.
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This is where revenue managers can add tremendous value. Their research early on and discussions with your customer base could affect everything from the top all the way to the bottom. In fact, this research should be conducted while you’re developing your offers, which can serve to inform which features and benefits to include.
Remember: There’s value, and then there are your values.
Clear company values help ensure everyone in the business works toward the same goals. The beauty of this vision is that it will guide you through thick and thin, especially in an unknown future. Your values are an anchor to hold you when visibility might be unclear. Remember your pricing strategies, who your company is, who your customers are and how you help them win. This will train you to make informed and proactive decisions rather than panicked reactions.
We can learn from the previous 2009 recession that simply slashing prices isn’t always smart or scalable. Discounting prices during an economic downturn can be a losing matter for everyone involved, including competitors, your own business and, in the long term, even your customers. Picture this: If Company A drops prices under the assumption that it will bring in more volume, it drives Company B to also drop its prices, which can then lead to further declines. This is how a price war develops, which leads to less revenue, profit and fewer jobs and money to go around. It can be very difficult, if not impossible, to recover from such a cycle, and algorithmic pricing can accelerate this if not managed carefully.
Instead of simply adjusting pricing, think about how you can shift offerings. You can have promotional, limited-time offers, which is a simple way of temporarily adjusting prices. You can also explore bundling and packaging products in a different way. I’ve found this can be valuable, allow for customers to come on board with a lower barrier and expand their footprint with you over time.
For example, my company has offered select services for free for the time being. The goal is to gain customers; allow them to understand the areas of opportunity and “size the prize”; and then subscribe to the offers that allow them to address the areas with which they’re struggling.
Bring pricing professionals into your organization.
A lot of pricing professionals are gaining visibility within organizations by using pricing to significantly increase revenue and profitability. I’ve seen that pricing experts can increase price effectiveness significantly, and these shifts can prove highly impactful.
For an average Fortune 1000 company, for example, a 1% increase in pricing effectiveness with everything else staying the same could increase profitability by 8% to 10%. Of course, this is generally speaking, and some industries could potentially see more, but the point is that even if your business is unable to establish a specific pricing professional role or team, these workers can also serve in other roles like sales managers, who can make and strategize on pricing decisions as a significant part of their time.
Prioritize diversity in the pricing world.
Segmentation is key for effective price optimization, and getting multiple viewpoints is a way you can get a sense of how different customers value your products and/or services. Understanding a new thought process or area of expertise from someone who isn’t like you or a large part of your organization is a good thing and can lead to innovation around pricing models and product offers.
Go outside your own network when searching for the people who could take your organization forward. The next leaders of your business might not come from your alma mater or your LinkedIn circle, and they might not have similar extra-curricular interests or spend time at the places you go to on the weekends. But excellent, hardworking people from different backgrounds beyond your executive board are out there. Once you find them, your company will be better off, as it will better reflect the world in which you are operating and the perspective of your customers.
I had a conversation recently about diversity in the pricing industry with Kevin Mitchell, president of the Professional Pricing Society, which my company is a member of. His perspective was that we should seek underrepresented groups for boards and senior leadership as a competitive strategy, rather than a public relations move. If significant parts of the population are held back from hiring and promotion opportunities, then we are limiting ourselves and reducing our competitive advantage. To me, this is imperative in seeing our peers through a new lens.