[Diagnostic and workshop program]
Pricing Strategy: Build a road map for profitable revenue growth
- identify sources of earnings risk
- discover new opportunities for margin expansion
- build strategic alignment and capability across executive and line management
- develop a series of quick wins and longer term initiatives for earnings growth
Without a documented pricing strategy, your margins are at risk
Over 80% of the companies that we’ve talked with over the last 10 years do not have a documented pricing strategy.
This means they are almost certain to be leaving substantial sums of money on the table at every negotiation. It is likely that there will be conflicting points of view on how to set and manage pricing with the net result being inconsistent prices and margin erosion.
Quite often the pricing strategy, if there is one, is in the heads of a few executives. It then trickles down to the rest of the organisation and often ends up just being a series of tactical behaviours to try and deal with competitors, customers and general market forces.
Markets are becoming more competitive
Low cost online only players are disrupting the market, and customers are becoming more fragmented with specific need states.
Customers are also engaging procurement teams to extract price concessions from unprepared sales teams.
In addition, many companies now have a long tail of products and customers and no way to manage simple tasks such as price increases without engaging an army of people to make that happen.
Ideas are not actions nor outcomes
Many clients have ideas to improve pricing practices but no roadmap, priority plan or method to implement pricing improvements. Consequently, no real progress is made.
Poorly structured list prices, inconsistent customer discounts, rebates paid regardless of performance and cost plus mark-up pricing leading to under-pricing and missing margin or over-pricing and not generating sales. These are some of the problems we identify.
Lack of capability to manage pricing leads to further margin risks.
When a sales force get no guidance or support on how to set and manage prices they often try to create a structure themselves. This leads to well-intentioned but confused or conflicting
prices in market that leave your business exposed.
There is often channel conflict that can lead to some very messy and expensive outcomes as distributors and wholesalers clash with major accounts. The net result is often excessive tactical discounting, overly generous contracts and poorly designed trading terms that result in substantial margin leakage.
The impact of not having an effective pricing strategy is significant.
The business becomes reactive rather than proactive.
Sales teams become frustrated or lose morale.
A learned pricing helplessness can become part of the culture.
Sales teams begin to believe they are selling a commodity with no pricing power.
The natural conclusion to this is a business in earnings decline or profit freefall.
The situation may continue to spiral out of control and become very difficult to turn around.
It may take years for the company to regain momentum and capture lost market share of customers who have defected to competitors. In many cases there are substantial changes to management ranks and often a loss of valuable experience.
You need a pricing strategy framework and roadmap
The pricing strategy and roadmap will generate for your business a series of quick wins to deliver immediate profits to the bottom line. In addition you will empower an engaged and focused team to work together to develop a pricing strategy and operational capability with companywide buy in and support.
You will realise profit improvement results driven by less discounting that erodes profit margins and faster, more informed decision making to close more deals at higher margins.
Accelerate your profit improvement program
With pricing capability now a strategic asset instead of a liability, you can now undertake more sophisticated pricing initiatives such as price experiments and price optimisation.
You can also develop a more advanced approach to customer segmentation that captures more value at the right time from your customers whilst ensuring you remain price competitive where necessary.
As the team build confidence in pricing and selling on value, they transform the culture. A virtuous circle of value-based marketing, selling and negotiation allows your business to make above industry average profits resulting in earnings growth and meeting or exceeding budget.
We believe there are 3 key components for pricing strategy
- Diagnostic assessment – A numbers and insights [Quant & Qual] led program to identify the right pricing strategy and operating capability for your business.
- Roadmap and action plan workshop
- Training & coaching – A professional development program to empower your team to make more profitable pricing decisions.
Pricing Insight delivers a practical and real world pricing strategy program built from a diagnostic assessment of the current state and future profit goals.
Traditional consulting firms rely on a small team of consultants to come in and prepare a report and hand it to the executive management team.
We engage line and operational staff in the development of the strategy and its successful execution.
By engaging the broader team, our strategy is set up for success from the beginning.We deliver training and development where needed.
The strategy includes a program of quick wins which promotes positive reinforcement, a renewed sense of energy and determination and results in further change.
We advise on any structural changes needed within the organisation and also which tools and resources can assist with managing pricing management moving forward.
The result is a step by step action plan and strategy to increase profit margins and reduce cost pressures.
The Pricing Insight process
- Discovery call with CEO, CFO or point of contact
- We provide a briefing document to ascertain further details
- A follow up call to build on the knowledge acquired
- Diagnostic phase for 1.5 – 2 weeks including questionnaires, face to face meetings and gathering of data
- We deliver an interim report
- Strategy workshop with line and operational staff over 1-2 days
- We deliver a complete strategy roadmap report
- Follow up discussion to discuss the delivery of quick wins and long term initiatives
A success story
We worked with a large Fortune 500, that does business outsourcing supplying a wide range of consumable items from the kitchen to the bathroom to large companies. What we found was they were trying to rebuild their pricing structure to move away from a cost plus culture to more value based culture so they could actually improve profitability.
What we did with them was we undertook a diagnostic process to understand the issues and their opportunities. And we found there were a number of outages in terms of lack of clarity around value, Lack of documentation of pricing strategy, and weaknesses in their customer agreements.
We also found quite substantial management misalignment, there were different viewpoints about how to actually go to market, which then resulted in different tactics and different pricing strategies being employed. Which then meant inconsistent process to market.
With the diagnostic strategy process, we’re obligated, everyone aligned and understanding what the right approach would be using a common framework.
We were able to get some quick wins set up into that business.
These quick wins included:
- Immediate margin gains and EBIT generation of +$3.0M over 24 months
- Training of the sales and category management teams to understand value based pricing concepts
- Tighter controls around discounting and more sophisticated pricing tactics to combat competitors
- Development of a dedicated pricing management function – role definition and responsibilities
How well is the most powerful profit lever in your business being managed?
Get in contact to arrange a confidential discussion and find out how you can transform your revenue model and business culture to build more profitable sources of revenue growth.