After giving 10 speeches on pricing and profits to groups of CEOs, it is certainly top of mind. Yet it should always be top of mind for executive teams. One unanimous finding from the informal research of executives is that pricing is a strategic topic and so we must find time! When is the last time you focused on pricing?
Whether you consider pricing a strategic topic or not, it will directly impact your business. Let’s start with three typical options from a branding point-of-view.
- Low price leader – Southwest and Walmart are great examples of this. No one flies Southwest to have a first class experience. Instead, they are accessible to the general public and fun to fly. Their prices have to match their brand, and low prices do NOT equate to lower profits. Southwest has been consistently profitable when the higher priced airlines weren’t!
- Luxury brands – Similar to the low price leader, a Bentley or Gucci denotes the luxury image. If you found a low price on a Bentley, you would definitely think it was a lemon. In the B2B world, the same holds true. We work with a high quality lawn and garden equipment and tools supplier, and their prices have to remain higher than the low cost brands to maintain their image and customer base. Of course, they need to provide more education and value for their customers as it is what they expect.
- Customer focused – in this case, the brand is all about the customer, and these companies are known for going the extra mile and providing superior value for their target customers. If it is all about value in the eyes of your customer, don’t you think your price better align to this value? Of course! If not, it is the epitome of the opposite of the brand.
Have you thought about your strategy and whether it relates to your pricing? It is easy to get caught up in competitive pricing situations and start to lower your price; however, it might be the time to take a step back and see whether what you are doing matches your branding and strategy. For example, one CEO provided an example of when she was a VP of Sales at a significant company. They had a niche product with unique value and higher prices. The sales teams were starting to see competition and thought they had to reduce pricing slightly to maintain their position; however, the CEO said ‘no’. They were the leader and had value their competitors didn’t. It was a really hard process for the sales team to go back and talk value instead of giving in on price but they managed it. Fast forward to the next year, and they were successful in maintaining their prices and didn’t lose business. Instead of falling into price war thinking, they talked about value.
What Do We Need to Think About Related to Strategic Pricing?
From an 80/20 perspective:
- Who is your target customer? Think about your answer. Hopefully it isn’t anyone willing to pay for your product or service! Yet that is an easy trap to fall into. Instead, take a step back and think about your target customer. What is their profile? How many current customers are target customers?
- What do your target customers value? Although we tend to spend 80% of our time on 20% of our customers, the key question is whether these are the target customers. Do we know what our target customers value? Don’t think about your customer base and your daily interactions to answer this question; instead think only about your target customers. If you don’t know, find out! Being clear on this alone will yield dramatic results.
- Is your pricing aligned with your target customers and their expectations of value? This is a tricky one. In our experience, 80%+ of our clients have room for improvement when we get to this point. It also changes over time, and so if you last put thought into this even a year or two ago, you are acting on old information!
There is vast opportunity to keep pricing top of mind as it relates to your strategy. Why do this? It is a top strategy to ensure customer value (to grow your business) and increase bottom line profits simultaneously. If you are interested in a pricing & profits assessment, contact us.