During an economic downturn, many firms start operating in survival mode where they attempt to scrape every last bit of revenue at any cost. This approach, of course, can be effective over the short term, but the long-term consequences of such an approach can be severe and lead to massive profit losses. Firms need to switch to a more strategic operating approach to ensure they get as much business as possible without sacrificing their margins. One critical strategy to approach the challenge is to use effective pricing, but it has been commonly underutilized by even very savvy companies. In recent years, however, effective pricing has started to gain momentum as a best practice approach because of these key factor:
- Measurable Results – There is proof that the right pricing strategies add proven value across many sectors.
- Untapped Opportunity – Currently, only a tiny percentage of firms have recognized the value of effective pricing.
- Low Investment Cost With High Returns – Companies don’t have to invest much to release substantial value.
So, what are the best ways for a company to leverage effective prices to increase turnover without sacrificing profits?
Featured below are 5 key practices to enable your firm to access the benefits of effective pricing as well as become more customer focused.
1. Make Pricing-Decision Support a Priority
Just about every firm now uses a professional CRM system. But, most firms tend to use their systems for data gathering as opposed to decision support. Firms can collect a huge amount of deal and transaction data over time and if this data is leveraged effectively, it can result in better deal negotiation and pricing structures. For example, firms could use transaction data to come up with more insightful pricing targets, as well as guidance from data protection consultancy and floors for sales teams to look to for support when interacting with consumers and negotiating deals.
2. Divide Products and Customers Into Groups
Many companies make the mistake of using a generic approach when interacting with buyers. This one-size-fits-all approach does not differentiate between a highly unprofitable customer and a highly profitable buyer. Similarly, many firms fail to differentiate how a potential buyer values different products.
For example, a specific product might be very important for buyers from the manufacturing sector, but of little importance to those from the chemical industry. In this case, a firm could segment products based on the end-use application of buyers from different industries. Buyers that they know value a particular product more could then be approached with higher price targets.
3. Equip the Sales Team
When talking to buyers, a sales team requires detailed pricing analytics to make the right choices as to how to increase a company’s revenues. Any discounts offered during deal negotiations are often the result of negotiation expertise as opposed to a sales rep’s insight into key facts about a buyer’s profitability, future potential, purchase history and expected product value. When companies make the decision to arm their sales teams with customized pricing guidance derived from buyer profiles, sales reps can tailor deal negotiations depending on the buyer and provide pricing structures in line with their profile. Companies can then start seeing not just more deals, but more profitable deals.
4. Make Improvements to Price Responsiveness
Today’s marketplaces are extremely competitive and a timely product price change can often be the difference between losing and securing a sale. Firms that have huge product lines across multiple industries, channels, and countries, need to simultaneously manage perhaps millions of individual price point data. Once they have the ability to quickly alter prices in response to volatility in the marketplace, they can start winning deals with profitable margins as opposed to winning unprofitable deals.
5. Technology Investments Are Key
Few firms have made strategic pricing models a priority and fewer make the investments in technology required to implement them effectively when dealing with customers. Conventional CRM systems and ERP (enterprise resource planning) systems lack the functionality to finetune pricing processes rapidity. To access that capability, a firm needs to look for price optimization and price management solutions which offer robust price setting, deal negotiation, and pricing analytics functionality. Many of the solutions can be easily integrated with current ERP and CRM systems, ensuring companies can improve buyer interactions by utilizing advanced pricing strategies accordingly.