We were recently introduced to a large industrial distributor that was searching for strategies to optimize prices. Their first inclination is to identify price improvement opportunities through transactional level pricing. In other words, find the prices at the transaction level that may lie outside the target pricing range and specifically, prices that may be well below the target range.
One of our first steps in helping companies identify pricing opportunities certainly lies in an examination of transactional pricing. It is a rare case where price improvement scenarios are not discovered at this level. There are a number of analyses that can be performed to uncover these opportunities including price band analysis, margin band analysi and pricing waterfall analysis.
However, there are really three inputs to arrive at optimal pricing. The first is an analysis of historical pricing data at the transaction level. Using the analyses mentioned above is a good starting point. However, an analysis of market data is just as important.
Market data includes pricing market research performed on your customers in order to identify the perceived value of your products and services compared to the perceived value of competitive offerings. And, it includes an accurate measurement of the price sensitivity of your products offering and brand. This type of pricing research is highly specialized and accurate when appropriately administered. Without sound market data the limits of pricing thresholds are unknown and any attempt to increase price levels is akin to shooting in the dark.
The third input to optimizing prices is expert judgment. Even though we have seen great strides in pricing mangement software and other analytical tools, the expetise provided by your team and outside consultants is invaluable in making pricing decisions.
Make sure that you utilize all three inputs when optimizing prices. We see many firms focused on only one input and leaving money on the table or, worse yet, making price decisions that are disconnected from the overall business strategy.
0 comments:
Post a Comment