Vistage question what is the right way to define and measure price? How can you improve net price realization, and in turn bank more profits? It is vital achieve the optimal price for each good or service, and ensure to manage your product mix to achieve the optimal price for a set of customer transactions. The following steps can help improve your pricing and profits:
- Have a clear executive level pricing owner
A study published in the MIT Sloan Review showed fewer than 15% companies of companies do not have any systematic pricing review. You should assign, goal and empower one of your executive team, most likely the VP of Marketing or CMO, to implement a pricing improvement plan and processes.
- Optimize your product range
If you have segmented your customers and understand which ones are truly price sensitive, having a basic price fighter in your range will meet their needs, without disrupting your full product line pricing. Look at your product pricing strategy versus your user segmentation.
- Align sales compensation with profit growth
If your sales reps are compensated for revenue, and not profits or price improvement, what incentive do they have to fight for the best price? Consider having your sales leaders compensated on expansion of either, average selling price or gross margin.
- Re-visit your price waterfall annually
Establish your price waterfall and compare it to your leading competitors. Odds are you are being pushed to match invoice price plus, you have more attractive trade terms, which your customers and sales team are not discussing in a price negotiation. Conduct a review of you and your competitors, selling terms and price structure annually.
- Understand what your customers value
Do those who set pricing truly understand what your customers value?
Do your selling tools and training continuously reinforce the value of your products?
What was the last insight your team delivered about how to improve pricing?
Ask your customers:
Why do they buy from you? Why they do not buy from you?
- Set expectations of annual price improvement
Creating a culture of price improvement will ensure pricing does not become an afterthought for a junior team member. Establish an annual price improvement goal and measure it monthly.