In this era of cost-cutting and price discounting, it has become harder for many firms to price their products in a profitable manner. Yet, this can be done!

As McKinsey’s Jay Jubas, Dieter Kiewell, and Georg Winkler report:

“Companies often overlook pricing as a driver of earnings growth, instead defaulting to cost cutting and other measures. Here are five steps to growth through pricing.”

  1. Provide meaningful transparency into pricing data — Pricing managers often lack a clear understanding of how profitability varies among regions and product lines, and they know even less about how it can vary among individual customers or transactions. Yet these all have an important influence on pricing and sales decisions.”
  2. Understand what customers really value — For all the sophistication provided by advanced analytics to master a complex array of prices, the price of a product or service ultimately depends on how much a customer thinks it’s worth—that is, ‘value pricing.’ The best companies augment pricing analytics with detailed customer insights to identify all the key buying factors that determine how much a product is worth to a given customer, understand how those factors compare with competitors’ offers, and quantify the value created for the customer.”
  3. Move from sales reps to ‘value negotiators’ — Determining the best price means nothing if sales reps can’t convince customers to accept it. For this reason, it’s critical that sales reps have important pricing capabilities, such as sound judgment to manage time, negotiate thoughtfully, and adjust pricing guidelines in order to maximize value and minimize the risk of customers defecting.”
  4. Provide on-the-job training to build confidence — While most companies understand it’s important to build the pricing skills of their people, few move beyond basic training in classes or online. Successful companies, however, use adult-learning techniques, such as experiential learning, to embed the new skills in the front line.”
  5. Change the culture — In our experience, even the best pricing programs will fail in the long term without a deliberate commitment to overcome the entrenched habits and shifting priorities that doom most change programs.”

Click the image to read a lot more.
3-5-2015 10-49-49 AM

8 Replies to “Generating Pricing Power”

  1. While it’s necessary to raise prices to grow and sustain a business, it’s not necessarily pleasing to customers, especially clients who have been loyal to your organization.

    It seems that breaking the news is most effective when you can help the customer focus on the value of your products and services. The price-change discussion should emphasize the worth of the offerings you provide is increasing more than the price.

    So, “value negotiators” sales reps can succeed at selling at higher prices and staying profitable, but that can only be done when the price increase strategy is supported by other actions in the organization.

    Companies must be prepared to over-deliver and really impress the customers. The product and service should always be improving. For instance, justify the price increase by adding new features or providing some other type of added value, such as unlimited customer support.

  2. Pricing Power is very important in marketing, regulating or leveling out demand is important in selling products and marketers are able to identify what the correct price point should be. Change in culture, on job training, understand what customers really want, and changing from sales reps to negotiators are very important points in what your companies prices should be. Apple engages in pricing power, every phone has its own range of prices. the iPhone 4 is basically free, the 5 is 100, and the 6 is 200. The steady increase of 100 dollars as you upgrade cell phones is a great example of it. In sum, if a company is able to engage in pricing power they are able to generate more revenue based on their consumer base. Companies like radio shack who engage in bad pricing power go bankrupt.

  3. I agree with points two through four in this article. The most important thing is knowing exactly what you are selling to the customer, gaining knowledge, and knowing why this product is worth purchasing. Then one would determine the customer’s needs. Not every customer is the same. Alter and explain your sales pitch as to why this product is worth purchasing. Lastly, believe in what you are saying. Don’t speak with upward inflections at the end of your sales pitch. Stay strong and reel that customer in. Pricing can earn growth for any company. A company just needs a strong team of associates that can do their due diligence and show the people the products true value.

  4. I think this advice really depends on what kind of products are being sold and where. Is it a small mom and pop store or a big chain store? Also the product that is being bought also matters. For small items that people pick up from a shelf that have a price tag on them and that are available in pretty much every similar retail store people are not usually going to complain about the price. They will just pick it up and bring it to the counter and pay for it. That’s how a lot of people operate nowadays. Pick up a product that you need, take it to the register counter and pay for it and walk out.

  5. Lower price could drive sales but not revuenue. The key is let customer aware the value of product and accept the reasonable price. To achieve this, businees could use social media to do customer education and build brand image and customer’s brand awareness. Traning for sales people is also a way to drive sales and revenue. Making sales people have confidence of product, and know every point of value on product, is also a way to let consumer know and accept product’s price.

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