The question isn’t whether or not you’re leaving money on the table – it’s a matter of how much. Below is a list of risk factors that could indicate that you’re giving up profit needlessly. Do any of them stand out to you?
You have little or no insight into value perception or willingness to pay across each of your customer segments
Your top factor in evaluating a price decision is product cost and margin
Scorecards emphasize revenue dollars more than profitability
Product offerings, and the associated pricing isn’t tailored to customer segments
Guidelines for discounting price are not documented, communicated, respected, or reinforced
Your business is increasingly shifting to contracts
You don’t have deep insight into your price waterfall
Now, if you’re not quite convinced that this might be a problem, consider that research conducted by a leading consulting firm concluded that companies that leverage “value-based pricing strategies earn 31% higher operating income than competitors whose pricing is driven by market share goals or target margins.”
Why such a big gap? It all comes down to pricing confidence and pricing discipline. Value-based pricing boosts pricing confidence by incorporating several characteristics, including those outlined above. In doing so, it provides firms with a richer picture of how their customers think about their purchase decision, giving those companies a much better sense of how to position their products and communicate the value. It also underpins better decision making about which market segments to focus on, and how to structure internal guidelines and incentives to encourage profitable behavior.
Pricing discipline is a natural offshoot of the same premise. The objective here is simply to understand how effectively the goals of your pricing program are executed in the real world. Establishing visibility into your price waterfall, customer variance, and contract performance (along with several other factors) allows firms to understand where their pricing tactics are being effective, and where further opportunity to recapture leaking profit might be.
By combining value-based insights with transactional best practices, companies are able to build a crisp picture of how to price products most profitably, and how to ensure that they hold on to their profit all the way to the bottom line.
So, the only question left is this: how much of the 31% do you want back?
At Beanstalk Revenue Management, we are passionate about identifying where money is being left on the table, and executing plans with our clients to get that profit back. We’d love an opportunity to learn more about your business and share how we can help. Find us on the web at www.beanstalkrm.com or call us at 651-356-8148.
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