How to Implement a Pricing Strategy: A Guide
How you set your prices and the strategy behind your price setting can have a range of implications for your business. For example, did you know that not every price you set needs to maximize your profit margins? Nor is every price on your products required to increase your sales volume. It could be you mix and match either of those two pricing strategies on different goods across your product line. And what’s more, you might even implement different strategies again on more of your products – and it could all be completely independent of what your competitors are doing. Your pricing strategy is all yours to implement according to the unique requirements of your business as you see fit. But you may need to put some effort into guiding it in the right direction.
At Pricefx, we have more than a decade of helping companies implement their own customized pricing strategy projects informed by pricing software. Based on our experiences, no lever has more importance in unearthing each individual organization’s pathway to profit than pricing.
So, the question is, how should your company progress forward from strategy to implementation? How should you go about ingraining your new pricing strategy into the DNA of your organization? Developing a pricing strategy is usually a neat and tidy affair, but the implementation of the strategy itself can become messy and in our experience, it can miss the mark of its full business potential if some key ingredients are not included.
Consequently, in this article, we will examine eight key considerations to assist your business in the successful implementation of your own unique price strategy.
Let’s dig in.
The Top 8 Considerations in Implementing a Pricing Strategy for Your Business
Pricing is generally defined as the process you use to set the price of your product or service, and it can sometimes be difficult to determine. If you set your prices too high, your customers may find your products too expensive. However, if you set your prices too low, it could negatively affect your profits.
Before we head off onto our shared journey in learning how to implement your company’s pricing strategy, it is critical to acknowledge that there is no perfect pricing strategy for any company and your strategy may change over time.
Changes in the marketplace require continual calibration and adaptability. While one pricing strategy may be just what you need for your product during its introductory phase, that strategy may become ineffective later. Most prosperous companies are prepared to adjust their strategies over time in their pursuit of maintaining profitability and a competitive advantage.
That said, having a well thought out pricing strategy from the get-go is vital to ensuring your business will thrive.
Consider the following eight factors for the successful pricing of your products;
- Make Pricing Strategy a Priority in Your Organization
- Set Measurable Benchmarks with a Clear Goal in Mind
- Select a Pricing Manager or Executive Decision Maker (Sponsor) to Drive Culture Change
- Clearly Define Responsibilities & Embed the Technology to Do the Job
- Staff Training on Your Pricing Strategy
- Define Pricing KPIs & Track results
- Communicate Results Internally Across All Sectors of Your Business
- Start Small but Aim Big with an Eye to Continuous Improvement
1. Make Pricing Strategy a Priority in Your Organization
The first step to pinpointing your ideal pricing strategy is to establish your pricing objectives and make them a top priority across your organization. The strategy you choose can make or break your business, so, you require buy-in from your management team to regularly emphasize the importance of pricing for the entire organization. Broaden the internal scope of your pricing strategy across your entire business.
Don’t forget, it is your business and what your competitors are doing may bear little resemblance to your pricing strategy. Think about your proposed pricing strategy as one which its adapted to your organization’s unique strengths and weaknesses.
Next up, your company management needs to set direction and define clarity on positioning and price levels as they will be critical to considerations to best help you achieve your business goals. Some things to consider when setting your pricing objectives are whether you want to maximize short- or long-term profits, achieve market stabilization, increase sales volume, or market share, etc. Other examples of pricing strategy outcomes that may drive your decision-making are;
- An increase in profitability
- Improved cash flow
- Market penetration
- Increased market share
- Increased revenue per customer
- Price-beat your competitors
- Introducing new products to the marketplace
- Reaching a new client base
- Increase in customer conversions and much more
After arriving at your pricing objectives, you can start pinpointing the pricing strategy that will best complement your unique set of products or services. prioritize them for implementation in a transparent and logical fashion.
2. Set Measurable Benchmarks with a Clear Goal in Mind
A fruitful pricing strategy implementation will require quantifiable goals that lead to an overall explicit target.
Identify your main pricing pain points and prioritize them in a hierarchical wish-list.
To assist your business to achieve this outcome, taking a differentiated perspective on pricing and identifying which pricing topics impact your organization’s bottom line will be key.
A price waterfall method which clarifies the steps to take for price optimization is a great scientific and methodical pathway to help you achieve your goals.
(Determining Price with a Price Waterfall)
In the beginning at least, don’t try to take on pricing your entire product list at once, but rather prioritize. Critically evaluating each step on improvement potential and defining a phased approach will assist in a lasting and self-sufficient pricing strategy regime.
Importantly, remember to re-adjust your customized pricing strategy roadmap after each phase and reprioritize throughout your pricing strategy implementation journey.
3. Select a Pricing Manager or Executive Decision Maker (Sponsor) to Drive Culture Change
The final say on pricing strategy should live at the executive team level and those managers will drive the culture change and bring the pricing strategy to fruition across the entire company. This is the only way to ensure a successful roll-out, with all key stakeholders included as part of the discussion.
Some organizations will keep the CEO involved as part of the pricing strategy implementation process, as they can perform the role of the ‘tiebreaker’ in many of the company-wide decisions being made across departments, and drive pricing excellence.
In other companies, that role may be taken up by the Pricing Manager, Sales Manager or even the Marketing Manager. It really depends on your company’s organizational structure. Pricing is so cross-functional that it can live almost anywhere in a business.
Regardless of the actual position name and location within your organization, the important thing will be that the appointed person has the ultimate authority to sign off on your pricing strategy implementation project and individual steps along the way.
A key component of that culture change will be potentially shifting the mindset of your sales staff. For example, even to this day, many sales teams are locked into thinking about sales volume and revenue targets. Of course, it will really be dependent on your business model, but these days an increasing number of sales teams are moving towards data-informed targets based on a combination of profitability and sales volume.
4. Clearly Define Responsibilities & Embed the Technology to Do the Job
To have a successful pricing strategy, you will need to give your pricing team the right tools to do the work. Your pricing team should be skilled in the use of data analysis (e.g., sales and transaction, customer, and product data) to develop the right fact base for your strategy.
Finding patterns and objective insights to support decision-making is vital and supplying your team with quality pricing software is a critical part of the puzzle. This type of transparent technology reinforces consistency in your pricing and allows for your pricing logic to be clearly defendable and explainable by your sales team when they are communicating with prospects.
(A Net Margin Graph Example Screenshot from the Pricefx Pricing Software System)
Depending on the way your company is organized, the responsibility for pricing can range from sales, marketing, and product management to your finance department. With the advent of pricing software technology, dedicated pricing teams are already part of many organizations. More of these directly responsible pricing teams are continually being added to companies all around the world.
Whatever section of your organization is responsible for pricing should be assigned clearly defined tasks and responsibilities. In a perfect world, there should be a balance of tasks between those performed centrally at your global headquarters and local responsibilities across regionalized pricing functions in your different jurisdictions of operation.
5. Staff Training on Your Pricing Strategy
Involving your sales at an early stage of your pricing strategy implementation project, training them, and clearly illustrating the benefits of your new strategy is important. To be able to explain your pricing to the customers, your sales team will need to comprehend and ‘buy into’ your pricing strategy to be able to explain it effectively and enthusiastically to your customers.
Consider a shift and have your Product Experts train your sales team in the value of your products. Simultaneously, consider an incentive program for sales staff to become incentivized by value and profit rather than revenue or volume alone.
6. Define Pricing KPIs & Track Results
For most businesses, tracking defined pricing Key Performance Indicators (KPIs) is now easier than ever before. Choose KPIs that make the most sense to your company’s business model, not based on what your competitors are doing. Although it may depend on the type of objective to be measured, the development of innovative technology now allows automatic tracking with less risk, while freeing up human analysis time for the portion that still needs it.
Thanks to data analytics, it is now possible to process vast amounts of data regarding sales, prices, users, trends, processes, etc., which you can then cross-reference as you see fit to find relationships between specific areas or segments. Tracking the KPI results and providing internal visibility is key to providing your sales team with the confidence to challenge your customers on price.
Pricing software not only allows you to carry out price adjustments through dynamic pricing but can also assist in the management of those KPIs that are directly related to average purchase value, profit margins, and average market price etc.
7. Communicate Results Internally Across All Sectors of Your Business
Implementing a new strategy of any kind can be time consuming and open to different interpretation by different sectors or departments of your organization. Pricing and a pricing strategy is more complex than most strategy implementations, so we suggest taking the time to communicate progress across your entire business after you go live.
However, consider the level of transparency that each department needs to know. For example, your sales team don’t need to know the cost price of your products. If they do know, they may be tempted to sell too close to the cost price to get the sale. On the other hand, give them a minimum to maximum sale price corridor to play with. Your minimum sale price could already provide you with a significant profit margin.
To continue to sustain buy-in for your new pricing strategy, it is critical to communicate the positive results to a broad audience within your company and reward outstanding individuals for their adoption. Communication will ensure that the price strategy is carried out and supported by your entire organization. Make certain your company’s people are included as part of the pricing strategy success story by sharing key milestone achievements and by celebrating small victories.
8. Start Small but Aim Big with an Eye to Continuous Improvement
While you will want a pricing strategy for the long term, don’t underestimate the importance of beginning with a small victory to help win people over and align your business objectives.
Starting with a quick win is often one of the best places to start with a pricing strategy.
Choose something that can quickly or immediately address one or more key pricing pain points. Many businesses have holes in their pricing strategy just begging to be repaired—such as profit margin leaks, missed upsell opportunities or underpriced products.
Starting small and scaling up gradually enables you to continuously refine and improve your pricing strategy while simultaneously building company-wide confidence in your strategy. Meanwhile, these types of phased pricing strategy implementation projects may lead to unearthing profit opportunities you never knew you had.
Now You Know the Keys to a Successful Pricing Strategy Implementation – What’s Next?
Now you have discovered the top 8 factors in putting a successful pricing strategy in place in your business. You’ve probably noticed that a big part of a successful pricing strategy implementation process is putting in place suitable technology to become as data informed as possible.
To make your pricing as data-driven and granular as it can be (not to mention – customized to your unique business objectives), you will need to consider a pricing software option.
Continue your learning journey with this recent article from the Pricefx Learning Center (click on the image below) on choosing the best pricing software to suit your company: