Pricing
What is it Worth?
Smart marketers today see micro-segment markets not as a challenge, but as an opportunity to define smaller, more customized offerings that are less price-sensitive. The more your product proposition is tailored to solve a specific customer’s problem, the easier it is to protect your price, margin, and performance.
Simple reports from transactional systems can provide enough information to support homogeneous mass-marketing strategies. Targeting micro-segments means modeling price implications and tracking results at many levels.
- Does the product portfolio offer a combined value and convenience advantage that can be priced tactically?
- What impact will an increase/decrease in price have upon volumes (a measure of price elasticity)?
- To what extent should pricing be used as a defensive versus aggressive tool, and what are the relative cost benefits?
With the Pricing decision area, you can set planning goals and scorecarding metrics for performance management elements such as:
- Price change (%)
- Sales ($)
- Price segment share and growth (%)
- Discount ($)
- Discount spread (%)
- List price, net price, & average price ($)
- Price elasticity factor (#)
- Price segment sales and value ($)
Most importantly, you can analyze these goals and metrics by a number of dimensions to find the hidden gems in the data:
- Industry
- Competitor
- Geographic region
- Market segment (macro & micro)
- Brand and Product line
- Sales organization and representative
- Billling customer
- Fiscal month
- Product brand
Using the Pricing decision area
As a Marketing professional, you set targets and plan campaigns and tactics based on your targets for the goals and metrics in Pricing. You monitor your success by looking at how you measure up against your targets. Further, you dive into your results to find out more about these elements underpinning performance management.- Discounts ($) : Are we offering discounts more in a specific region or in the presence of a specific competitor?
- Price elasticity (#) : What products or markets show the least price elasticity—as we increase price do we hold our sales volumes, pointing to unexplored revenue opportunities?
- Price segment sales and value (#) : Rather than looking at product, how is the company doing with a particular price point of products against its competitors?
Setting prices based on well-thought-out models is one thing, but companies also must monitor how flexible local offices and sales teams need to be. Centralized pricing ensures margin stability, but can be counterproductive in a fast-moving, competitive situation. As a compromise, companies typically offer pricing guidelines and a pricing floor. This lets local sales reps respond to competitive pressures but protects the business from dangerously low price levels. Good marketing systems monitor this data to test the validity of pricing assumptions, as well as to gain early warning of competitor attacks on pricing.
Well-designed sales incentives can help avoid price erosion, but experience shows that these can also encourage unintended behaviors. Developing sales incentives without implementing a reporting system on those incentives is a recipe for wasting money. The ability to manage pricing guidelines while offering local sales reps the flexibility they require depends on the use of information from business intelligence and planning tools.
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