Pricing – do you have it right?
Increasingly in an online world, price is either THE decision factor, or a key influencing factor in purchasing decisions. Whether you are a B2B company or a B2C company, you have unique issues. Of course other factors matter – inventory, service, delivery options – but for many organizations who are new to “exposing” everything to the web, one thing they discover is pricing is a bigger challenge than they thought.
And increasing price transparency is making price the easiest, and therefore most common, element to compare. Other features may matter more, but price is easier to compare.
And suddenly price is hard to get right. There are some critical challenges tucked away in pricing:
- Making sure your best and most deserving customers get the best price;
- Making sure your pricing strategy supports your business strategy. You’ll want more attractive pricing if you want to grow, more managed pricing if you need to manage profitability;
- Maximizing revenue per order is increasingly difficult with the profusion of sales channels and methods that have crept into your business; and
- Revenue and profitability by channel is suddenly a more complex and important dimension of analysis.
You may have a sales force that has pricing latitude. You may have clients who buy stuff on your site who are “visitors” and those who are “registered.” You may have a loyalty program. You may offer some clients contract prices. Or contract discounts. Your contracts may or may not adjust for inflation or allow for inflation-based price increases. Or .. really, there are so many details that have crept in over the years to fix pricing – it’s no surprise it’s a challenge again.
In insurance or lending, you may sometimes offer a policy or loan whose “cost” you need to predict in advance – and that brings in a whole host of other factors. But needless to say, if you price it, someone will compare it.
The absolute worst way to fail a price comparison test, is when it’s one your channels against another. One retailer we know has a “Business Channel” they use to market to SMEs – but that channel’s prices are commonly 50% higher than either going to the store or to their regular website and choosing next day free delivery. Needless to say, that channel is struggling. It’s a different problem if you are priced too high or too low. But if your channels are competing against each other, chances are good you’re paying too much for the sale (even if you get it) and annoying a customer somewhere.
Getting pricing right is critical, and the larger you are, the more important it is. And even if you had it right last year, you need to keep your eye on it – lots of pressures exist that may create issues, from marketing campaigns, to sales teams, to client contract negotiations, to competitor pricing moves.
You may need to inform your pricing with “price checking” – which may include testing against other online suppliers. While this needs to be done carefully, it’s not actually that different from sending your staff out to do comparison shopping in other stores.
You may need to know about market segments. Maybe you have member-reduced prices. Maybe you have a loyalty program. Or maybe you offer some customers “free” shipping.
And then you need to integrate that into your “best online price.”
Some organizations will benefit from “dynamic pricing” – increasingly sophisticated pricing strategies that raise the price as availability becomes dearer (or other rules). Think about an airline flight. Book four months in advance, you’ll likely get a pretty good price. But as the plane’s different classes fill up, your options naturally dwindle to the fewer, more expensive seats. But airlines have gotten even smarter than that. The more people are looking at a particular flight, the higher they might set the price. Or historically full/overbooked flights might be priced for premiums. And then there is the add-on strategy – oh you want to check bags on that flight? And food? And once you have your credit card out, would you like a drink with that? It all raises the “average revenue per seat” (which used to be the price).
Pricing is increasingly an art, a marketing tool, a competitive weapon as well as one of the key drivers of revenue and profitability.
Getting pricing right is increasingly a complex data challenge, which we can help with.
This is one of our key stories – data is at the heart of almost all of these questions, and if you are on your game, then your data will be weaponized in service of better pricing. It will not just “inform” pricing, it may grow to “inform” it in real-time.
We have helped people analyze and streamline pricing, simulate the impact of price changes, build predictive models to adjust pricing for riskier or less risky clients, and many other projects.
Call us to talk it through. We have some valuable insights to share.