The thought of sitting down and plotting out a comprehensive, holistic pricing strategy is daunting to many of my clients. So much so, in fact, that oftentimes they try to “fix” their pricing in bits and pieces over a period of time, figuring that doing something is better than doing nothing.
While this rationale may work for some things, pricing is unfortunately not one of them.
Most companies don’t have any kind of formal pricing strategy. Sure, they set list prices, but they almost never sell at those prices. Instead, they end up customizing prices for nearly every customer, product, and purchase. This leads to some costly and serious problems.
First, salespeople learn that the list prices their employer gives them are only suggestions—starting points from which they can secure lower pricing if they work at it. Since this is much easier than trying to convince the customer to pay more, they default to negotiating for a lower price from their own company. In essence, they start functioning as an agent for the customer. Clearly, this is not what you want.
Second, tremendous amounts of time and money are wasted when pricing is done in an ad hoc, opportunistic fashion. More and more people (who all believe they’re pricing experts) start to get involved in more and more quotations and proposals. They want to determine or influence the price, or keep track of every change in the pricing process.
If you were to sit down and calculate the amount of money (and time) your company is spending on this type of ad hoc pricing process—not to mention the opportunity costs of failing to get a single, effective system in place—I guarantee that you would be shocked, and strongly motivated to make an immediate change.
Now, don’t get me wrong—establishing a single company-wide pricing strategy requires time, resources, and a lot of hard thinking. It’s the polar opposite of a quick fix. But, as with so many things in life, the payoff of doing it once and doing it right pays dividends many times over. Once I start to show clients just how much more profitable their companies will become with a holistic pricing strategy in place, they become downright eager to get started!