When faced with financial adversity, many companies downshift into ‘survival mode’ and ruthlessly chase every possible scrap of revenue. This can be a decent short-term strategy, but it comes with a host of serious complications if it is pursued too long. It results in margin compression and profit loss on a long enough timeline. For long-term survivability, companies need more strategic, survivability-oriented methods that preserve profit margins while helping them find more customers. Flexible pricing is a strategy that can achieve these goals. Unfortunately, many companies – even highly sophisticated ones – fail to utilise it. Flexible pricing is finally starting to gain traction, thanks largely to three important developments:
1) Objective Results
The value of advanced pricing strategies has been demonstrated in multiple industries. The strategies must meet the legal policies and requirements which can be overseen by either in-house experts or external assurance companies like Trident Assurance Services.
2) Competitive Advantage
Because it is currently under-utilised, agile pricing can give those companies that employ it a leg up.
3) Strong Return Ratio
Companies can increase their revenue significantly with a relatively modest pricing investment.
What’s the best way for companies to sustain profits and increase revenues by altering their pricing strategies? The five best practices described below are vital for pricing success.
1) Build Strong Tools for Pricing Decisions
At this point, CRM systems have become ubiquitous in many industries. Most companies using these systems are neglecting their potential for decision support and merely using them for data collection. All of the transaction and deal records entered into a CRM system can, with the right tools, be turned into insightful guidance for pricing negotiations. Companies can, for instance, set more intelligent pricing targets by examining their past transaction data. Sales teams can reap the benefits of this historical information when they negotiate with both new and existing customers.
2) Product and Customer Segmentation
Many companies stick with an ‘every buyer is equal’ approach even though they have the tools to be more discriminating. Highly profitable customers with huge future potential can and should be distinguished from less-profitable customers whose future potential is limited. Another place where companies can be more discerning is in judging how individual customers value the products and services they purchase. A given raw material, for example, might be modestly useful in the chemical industry but critically important in the manufacturing industry. This is the sort of product that cries out for segmentation. Sales professionals should receive different pricing guidance for this product based on the intended end use. Products should typically be priced more stringently (with fewer discounts available) when they are offered to customers to whom they are critical.
3) Empower the Sales Team
In order to be effective, all of the pricing insights discussed above need to be freely available and usable for sales teams. In many deals, discounts and other pricing details are set by the sales rep’s negotiating skills first and pricing data second, if at all. Sales reps can make better decisions if they have actionable insight into product values, purchase histories, and the current and projected profitability of the customer. Sales teams that receive customised pricing guidance fitted to the specific customer and products can negotiate more consistent and favourable pricing terms. Better-informed sales teams win more deals and help protect long-term profitability.
4) Make Prices More Responsive
With the transparency and speed of information sharing in the modern business world, changing prices can be the difference between a deal closed and a deal lost. Major companies may find themselves selling thousands of products in different industries, different channels, and different regions. This often translates into millions of price points to manage. Fine-tuning those prices to reflect market changes can help win deals while preserving favourable margins.
5) Use the Right Tools
As noted above, prioritising pricing is still relatively rare. Companies that wish to prioritise it need to invest in the technology required to do it effectively. Standard off-the-shelf CRM and ERP (enterprise resource planning) systems are not equipped to streamline pricing. What are required are tools expressly built to analyse pricing, suggest optimisation solutions, and deliver actionable deal guidance. Ideally, such tools will integrate seamlessly with a firm’s existing CRM and ERP resources. Agile pricing strategies can become an effective tool for improving both revenue and customer interactions.