Too often, when a company considers making a pricing action on a set of products/services they make two simplifying assumptions that can significantly impact results:
- Pricing decisions assume a uniform price/volume tradeoff – a price increase will proportionally lower demand and a price decrease will proportionally raise demand;
- Pricing decisions are made in isolation, ignoring the role a product/service plays in the company’s total offering.
If your company falls into either (or both), then chances are, your past pricing actions have fallen short of expectations.
By replacing simplifying assumptions with sophisticated and proprietary analytics, you can identify, quantify, and capture precise pricing opportunities to drive BOTH profit and volume. To do so, there are critical capabilities and considerations you should address:
Understand price elasticity to inform more targeted and efficient price actions
In a previous blog, we spoke to the importance of price elasticity , which measures changes in customers’ demand in response to price. Armed with this knowledge, you can identify more targeted and efficient opportunities to make strategic and precise pricing actions such as:
- Targeted price increases on highly “inelastic” products/services (i.e., where demand is relatively insensitive to changes in price); you can drive greater profits with minimal volume erosion;
- Targeted price decreases on highly “elastic” products/services (i.e., where demand is relatively sensitive to changes in price); you can drive volume growth and increase total profit dollars.
Take a holistic approach to pricing to drive a balanced result
After identifying the right products/services to target and the potential price action to take, you must consider the potential impact on a larger scale. Some considerations should include:
- Striking the right balance between price increases and decreases in order to drive BOTH profit and volume growth;
- Accounting for the interaction between products;
- Understanding the impact on the total price of a customer’s basket of products/services purchased.
Combining the right pricing strategy, capabilities, and holistic approach can produce significant pricing benefits. No longer do you have to choose profit or volume…you really can achieve BOTH!