A sales transaction cannot take place without a price. A sales transaction will not take place without the right price. Given these fundamental pricing truths, how confident are you in your price setting capabilities?
There isn’t a one-size-fits-all approach to a price strategy for all products. While not all companies should strive for the most advanced approaches, most would unquestionably benefit from adding more analytical sophistication to their current pricing strategy and process. Some companies may find it hard to accomplish, but there are fundamental best practices to setting the right prices for the right products. Depending on the maturity of your organization, there are different levels of pricing strategies that can help you avoid leaving money on the table:
- Basic: These approaches range from cost-plus pricing to competitive benchmarking, and rely on simple financial objectives or market targets to guide your pricing strategy. They are a solid starting point for any business, but ignore critical customer, market, and product factors.
- Intermediate: A rules-based pricing strategy is a popular approach for early stage Revenue Management practitioners, especially at companies with cumbersome product portfolios. This approach establishes pricing rules to guide tactical price setting decisions and a strategic pricing response. Typical rules-based pricing processes incorporate data inputs of varying sophistication – from static product relationships and financial targets to dynamic customer segmentation and price sensitivity metrics. Varying levels of automation can exist with a rules-based pricing approach.
- Advanced: World-class Revenue Management organizations have pricing strategies that set the optimal price for a specific transaction based on the strategy, goals, and current marketplace dynamics. Analytically-derived data inputs such as price elasticity, competitive price ratios, customer lifetime value and demand/supply forecasts are used to determine the perfect price. Additionally, price optimization can be used to revise pricing strategies, by market, channel or product, on demand and in real-time.
Regardless of approach or price change frequency, your company makes critical pricing decisions every day, and having the right pricing strategy is essential to your organization. Adding Revenue Management best practices to your pricing strategy can help ensure that more of the right sales transactions will take place and you won’t leave money on the table.