The Homa Files

Key Takeaway: There are many ways to drive profitability for your brand. While line extensions, increased unit sales, and cost reductions may increase the ever-important bottom line, pricing strategies may be the most overlooked options.

A sound pricing strategy has the potential to improve profitability more than other tactics, as any change in price will inevitably trickle all the way down to the organization’s overall profits.

By knowing your market, establishing target prices, and giving consumers options at different price points, you will have the potential to improve profits for your existing brand or line your new business up for success.

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Excerpted from Businessweek, “Effective Pricing Strategies to Improve Profits” by Tapan Bhatt, April 19, 2010

Current turmoil in the financial markets, highly competitive markets, and downward pressure on product prices strain the profits of companies both large and small. Now more than ever, companies must turn to the most influential, yet overlooked driver of profits: active price management.

Improve price responsiveness. To prevent margin erosion, companies should continuously fine-tune pricing across products and services so that it aligns with prevailing market conditions. Communicating prices across the network of sales reps, partners, and distributors also arms teams with the pricing data they need to compete effectively.

Address low-margin business. Companies can accurately identify low-margin business and associated root causes to make informed decisions as to whether certain deals make strategic sense despite low profitability. This way corrective action can be taken if needed.

Tighten cost-to-serve recovery. Tough economic times demand tighter cost-to-serve policies. Companies can classify customers into categories such as “strategic” and “opportunistic” to ensure appropriate cost-to-serve recovery for opportunistic customers while serving the needs of strategic customers.

Set granular pricing. Rather than using an ad hoc approach, companies should set prices and negotiation guidance according to different customer segments. Segment-specific pricing considers factors such as customer perception of product value, prevailing market conditions, and position vs. competitors.

Control “maverick” selling. The absence of guidelines on pricing negotiation, or the ability to enforce them, creates substantial variability in negotiation outcomes. Companies can increase negotiation consistency and improve margins by establishing target prices, approval levels, and floors.

Edit by JMZ

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Full Article:
http://www.businessweek.com/smallbiz/tips/archives/2010/04/effective_prici.html

This entry was posted on May 3, 2010 at 7:24 am and is filed under Mktg - Pricing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.