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10 Common Pricing Mistakes ….

By February 2, 2013 Commentary, Euby No Comments

What a great topic….with today’s upward pressures on the prices of many commodities…and the continued devaluation of the dollar all but assuring us of an inflationary period on the horizon.

I just received and read a white paper on the 10  Common Mistakes that Companies make in pricing their products and services by Dennis Brown….with contributions from others….and yes, as

always I am adding my comments.    It is a good thought provoker as “Price Strategy” in volatile economic times can not only impact your bottom line…but the viability of your company!
Mistake #1 )  Basing your PRICE purely on your COST… without consideration of the Customers Perception of VALUE.   Costs should ONLY be considered for the LOWER BOUNDRY of your PRICE!  VALUE should set the UPPER limit and your regular business transactions will find a median in between…..but do NOT base price completely on COST.  You can’t win that game!

Mistake # 2)  Basing your price on the “marketplace”  …or the collective judgement of the value.  If you use this method…you will be asking for and accepting the commoditization of your product.

Mistake # 3 ) Maintaining what YOU feel is a fair margin across ALL product and service lines.  That simply is unrealistic and dangerous…you will lose some product lines all together as you will be priced out of the market….and others you will be selling for too little…. This is further complicated by the fact that you should have “different prices” for different customers….one size does NOT fit all.

Mistake # 4)  As above ….the last sentance….”one price does NOT fit all”  do not FAIL to segment your customers and their respective pricing levels.  You must consider the factors of EACH customer.

Mistake # 5)  Holding prices …no matter what….even if costs go up or down…or clients change in size or ability to pay.  Educate your clients about the market…prepare them for price increases by sharing the information….it makes accepting the increase much easier if they have seen the documentation for months showing the raw material increases.

Mistake # 6 )  Incentify  your sales force on REVENUE and not CONTRIBUTION!   If you do NOT base your commission plans on CONTRIBUTION…you can quickly grow yourself BANKRUPT with a couple of superstar reps!

Mistake # 7 )  Changing prices without any consideration of what the competition is doing.  If you find yourself raising prices just as your competitor rolls out a major discount….well..you can understand your customers reactions.

Mistake # 8 )  Spending insufficient resources managing your pricing.  Don’t get caught in the “set it and forget it” program…. you must have several sets of eyes working with pricing…estblishing, checking and verifying.  Use HARD DATA from the field and from professional resources.

Mistake # 9 )  Failing to establish internal procedures to optimize prices.  A hastily called “price meeting” is a great way to lose money.  Discipline your approach, research, review, prepare and then provide the data and analysis to support the pricing you institute.

Mistake # 10 )  Spending most of your time servicing your least profitable customers.  Why does this happen?  But we all fall victim to it….it is probably our insisting to ourselves that we can “turn it around” over time….but really what ends up happening is that we get RAN OVER time after time.  Know when to fold um…..

And the BONUS # 11….Don’t only rely on your sales force and customer service people to provide you with the VALUE PERCEPTION of your clients.  Customers simply will NOT BE FULLY HONEST with their reps….they LIKE THEM..and as such will “sugar coat” ….. Employ a  trained professional or organization to establish these values from time to time.  The VALUE to you and your organization will be multiplied many times over.  You will get the REAL STORY!

With the above considerations when you are working with prices are included and implemented, your “pricing strategy” will be far more PROFITABLE and VIABLE over the long-term
Ok that is it for this week….Havea  wonderful rest of the weekend….  till next time !

Euby

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