An education and training program in your most powerful profit lever - pricing
Does your business rely on Cost plus pricing methods or comparison with competitors to set prices? If so, you will more than likely have 200-300 basis points of margin upside that can be realised by employing a more sophisticated approach to pricing.
What training have your people had to manage your most powerful profit lever? For most companies, the answer is zero. It has all been learned on the job. This presents your business with substantial margin risks.
Price Mastery is a practical course designed specifically to educate and upskill your team with critical pricing knowledge and techniques that will improve your margins and profitability.
- Generate 200-300 basis points of additional margin in year one by upskilling your team in pricing, your most powerful profit lever
- Transform your business culture from cost plus to value based and improve profitability with a series of quick wins
- Improve sales force productivity and win more business at higher margins
- Reduce the risk of earnings surprises and profit downgrades
A critical risk to margins – A lack of formal training in pricing
A critical risk to margins – A lack of formal training in pricing – your most powerful profit lever
Margins are under pressure from almost all angles:
- supplier cost increases,
- aggressive customer negotiation tactics,
- opportunistic competitors and
- disrupted business models
The combination of these pressures will drive substantial downward pressure on prices.
For most companies with average EBIT margins of 8%, experiencing a 2% improvement in gross margins will generate 25% earnings growth. Imagine creating growth in earnings that comes with virtually zero capital outlay, no need to find new customers, and no need to launch new products. This new method also comes without risk of increased fixed costs such as wages, capacity or long term agreements that often arise alongside having to sell more volume.
However as it stands today, there’s no formal schooling available when it comes to pricing and pricing strategy.
Most executives learn a few tips and tricks along the way, enough to set prices on the job. Generally, they find themselves implementing a form of cost plus markup to set prices.
They may check what competitors are charging or simply rely on a gut feeling.
Subsequently, one of the greatest risks to business profitability in the current climate is the lack of skills and techniques to make profitable and sustainable pricing decisions.
What’s changing? Pricing is becoming more complex and complicated
Markets are no longer homogeneous sets of customers who can be categorised by size, channel and geography. Each customer is now a market segment of one. Each customer has a unique value profile that means traditional approaches to pricing such as cost plus mark up or additional discounts and rebates to close a deal are no longer effective.
These types of pricing approaches inevitably result in suboptimal results. Prices are either too expensive or there is evidence of substantial underpricing. Money is left on the table and profit is impacted.
Many companies are now large consolidated entities with revenues in the hundreds of millions, if not billions, with single digit EBIT margins. This situation means that large companies’ earnings results are now highly leveraged to micro changes in margin. Even 50 basis points (0.50%) can represent significant risks to earnings.
The pain you will experience if pricing is not addressed
Your margins will be under constant pressure whenever the following conditions are present in your business:
- Undefined value drivers
- Cost Plus pricing culture
- Commodity mindsets
- Management misalignment
- Pricing complexity / inconsistency
- Negotiating with procurement
- Reliance on price discounting to win or retain business
- Inability to implement a price increase
These factors left unaddressed will result in steady revenue declines and margin erosion.
More pain that could occur
When these 8 sources of margin pressure become an entrenched set of beliefs within the business, a learned helplessness sets in. Individuals may start setting pricing strategies that are not consistent across products / services and channels. Inconsistent pricing over time undermines market position and negotiating power. The result is further margin erosion.
Special pricing deals often get set up in the system and remain undetected even years after the original deal has formally expired creating yet another source of margin loss.
Without a clear pricing strategy and a team skilled to manage pricing effectively, the culture becomes misaligned and unable to take the necessary actions to improve pricing.
An unskilled team may take you through this one-way door
For many companies, the trigger to act to solve the pricing challenge often comes via an expensive but unwanted lesson.
For example, we often see a client who has experienced channel clash or a discount offered to a small customer via a lone salesperson or territory manager that is then discovered by a large key account customer by accident. The large account often seeks to punish the hapless supplier for their pricing mistakes by dropping their prices in the market. This creates a ripple effect whereby distributor partners then lower their prices to remain competitive.
The entire market prices for leading products or services could fall by 5-10% within 2-3 weeks. This could end up costing the suppliers millions of dollars in pure profit.
The costly or painful process to recover
Trying to recover from market collapses such as the one described in the example above can take years. Regaining trust of the major customer may not even be possible. From here on, negotiations are tense and unproductive. Often the supplier has to make far more concessions to regain favour than would otherwise be the case. The result of going through this one way door is very costly and painful.
What a highly trained team could deliver for your business
Staff who are capable in setting and managing pricing can transform the culture and profitability of your business. From executive to line managers, a shared understanding of the science of pricing and value can have a powerful impact on your business.
By educating your team on the fundamentals of pricing strategy and tactics, you enable them to think clearly about the value exchange process. They come to understand that they have more pricing power than they realise. If you understand the concept of early adopters and late majority from marketing 10, you will know that culture and behaviour shifts across the organisation starting with a select group of individuals. These early adopters, while often representing no more than 20% of staff, try new ideas and then influence the others in the business.
Educating this 20% is a highly leveraged investment that will allow you to create an impact across the entire organization. You cannot change beliefs, attitudes and behaviours with an email or the issuance of a policy document. It comes through education, and empowering early adopters to positively influence the wider group.
Price Mastery will accelerate earnings growth and reduce the risk of margin leakage
When your sales and marketing teams are able to clearly recognise your customers’ value and are able to translate this understanding into a commercially realistic pricing strategy, your business will be in a position to accelerate margins and earnings growth quickly and sustainably over the long term. A shared understanding of pricing best practices and alignment on pricing strategy will allow your business to focus on the critical areas of pricing that directly impact your company’s profitability.
With Price Mastery, you will gain the skills to take your business from an ad-hoc reactive, cost-plus business culture to one that has well defined pricing strategies and a highly engaged team capable of marketing and selling on value.
Once this management alignment is achieved with a base level of pricing competence, you can begin to develop pricing as a centre of excellence within the business and become an industry price leader.
Why undertake Price Mastery for your business?
Price Mastery is designed for executives, sales, marketing and finance teams who want to build their pricing capability.
This training is frequently used by Fortune 500 companies, ASX listed companies and private equity owned businesses.
Price Mastery is the result of 22 years of experience developing commercial practical pricing solutions. The cours has been developed after working with 110 different companies across dozens of industries and multiple revenue models (B2B and B2C) for both services and product based businesses. The concepts we teach, however, are perfectly suited for any business that needs to sell in value.
We have developed a flipped classroom model where learners apply techniques to their business as they progress through the course. They engage with their colleagues and peers and bring real examples to the table while learning practical principles from real world cases.
The training includes an online course component, a practical course component and a live workshop.
The Price Mastery course moves through 6 core levels of competency:
Level of learning
Recall of key words
Definition of terms'
Summarise or rephrase key concepts
Describe or compare concepts
Apply rules or principles
Classify, apply to practical example
Identify relationships or component parts
Analyse & develop conclusions
Develop two disparate elements into a new concept
Predict, forecast or estimate
Assess a situation and develop a solution
Case study assessment
At the conclusion of the course, your staff will have the ability to solve complex pricing problems with their new level 6 skill set. Learners can remain subscribed to the regular Pricing Insight updates to get additional case studies and advanced techniques used and developed with our clients across the world.
The primary objective of the Price Mastery course is margin improvement. Upon completion of the program, your team members will be equipped to produce a more sophisticated dialogue in the business and you will experience less noise around pricing. Less pricing errors equates to less margin left on the table. You will notice this shift almost immediately and a complete transformation within 12-18 months.
With a sophisticated Learning Management System, we provide an analysis of how your learners are performing throughout the course. We critically analyse this information and use it to adjust learning methods and case materials to maximise learning results.
Course Module Overview
There are 3 key skills areas and 3 modules in each skill area, 9 modules in total.
- Customer value drivers
- Pricing strategy
- Customer agreements
- Management alignment
- Pricing team skills
- Value based marketing sales & negotiation
- Pricing analytics & methods
- Pricing systems and tools
- Pricing structures
The Pricing Insight process
- Discovery call – to identify pricing challenges and tailor the right course and materials for your learners.
- Nominate learners – usually a combination of sales, marketing, finance and operations teams. A group of 15-30 people is the ideal number for a workshop.
- Agree upon dates and locations – the ideal workshop length is 1.5 days. Research shows deep brain learning takes place overnight and your people are in the best position to consolidate ideas on day 2. Some clients prefer a 1-day option that we can cater for by providing some structured pre-work and by complementing the face-to-face learning with online course completion.
A success story
Pricing Insight worked with a professional services firm that was seeking to empower their partners to make more effective pricing decisions. With the knowledge and skills acquired in our Price Mastery training for professional services, the firm developed new frameworks, methods and ideas to set and manage prices in a professional services environment.
As a result of their new capabilities, this firm switched their pricing model from pricing by the hour to pricing by the project. They learned how to identify the services they could increase in price and some that required realignment and a reduction in price. The net result was an overall increase in profit while still protecting and retaining customers.
Does your business rely on Cost Plus pricing methods or comparison with competitors to set prices?
If so, you will more than likely have 200-300 basis points of margin upside that can be realised by employing a more sophisticated approach to pricing.
Get in contact to arrange a confidential discussion about how the Price Mastery program will transform your business and improve profitability.