In our current, highly competitive and dynamic global marketplace, marketers have quickly learned that they must not only behave differently; we must think differently as well.  If our strategy is absent or inadequate, there is little chance the execution will success in achieving key objectives.  It’s profit, not market share, that ultimately determines market leaders today and sustains them through tomorrow.

To sustain profitability, particularly in a customer-centric organization, one of the key drivers is a strategic pricing system.  As a key component of an effective business design, strategic pricing systems must be the product of in-depth research, in terms of market conditions, internal financial realities and branding.  If pricing isn’t working well, chances are it’s a barometer of other core issues.  Here are some key questions to ask when assessing your current pricing strategy:

1. Have we really covered all our costs?  Costing is still one of the most critical pricing pillars and always will be, especially in order to support sustainability. Since we are often on the receiving end of increased costs, it’s important to review our own pricing regularly to stay above sea-level or make a conscious choice not to do so.  I once led the Marketing function for a CEO who insisted we adopt an averaging pricing strategy: 25% profit margin across the board for all product lines; regardless of manufacturing costs or competitive market conditions.  It was a challenge, just being able to introduce the loss leader concept.  Unfortunately, the company had to be sold two years later; not just due to a poor pricing strategy but it was a leading contributor in a highly competitive sector.

Marketers seeking to optimize profit potential will need to know which products are profitable over time and why, based on an internal review of pricing processes and  guidelines. When Pricing is set outside the Sales and Marketing aegis, which happens surprisingly often, branding and market position are often compromised, as is Marketing clout since this is the only “P” that directly helps earn cash.

2.  Are we communicating our Pricing issues on a regular basis with consistent messages and with sufficient leadtime for adaptation? Customers have never been stupid and they are getting smarter every day. And, in the era of Social Media, there’s support for the postulate customers – not companies – now brand products.  The recent uproar over Anthem Blue Cross health insurance’s announcement regarding a massive increase in premiums in less than three months gave rise to both customer outcry and regulator scrutiny. While Blue Cross customers, of which I am one, have become used to having to swallow about 30% premium hikes annually, this was so over the top, regulators have now stepped in to assess the situation. Thus, had Blue Cross retained its usual, still considerable price hike, it would be realizing those profits now instead of waiting for legislators to mandate something.

Along similar lines, are we communicating Pricing in respectful, value-based ways? Regrettably, the used car business got its Sales tactics stigma for a reason. Ditto for the folks who are eternally “Going out of Business”, with sticker sales ostensibly to match.  Given the emotional triangle among customers, pocketbooks and products, it’s important to communicate respectfully with a pricing strategy that is both transparent and logical. 

3. Are we still leveraging a Value platform, even in recessionary times? While there’s much to be said about cost often trumping value, especially in recessionary times, with the right positioning and messaging, value (not luxury) can in fact triumph more when things are tough. If marketers can demonstrate true value for money (difference in potency; more volume for the same price; 2 for 1, etc.) with crisp, clear yet respectful messages, customers cannot only be retained but acquired. Target’s “Expect More. Pay Less.”  mantra provides an excellent example of this premise in action as both quality and frugality are broadly stated.- - A future blog post will address Value Pricing, (aka “You get what you pay for”) along with other proven pricing strategies. Then, I’ll discuss why I have to break it to many of my clients: “ You can’t be the cheapest and the best.”.

 

It is critical to devise a strategic pricing system that not only reaches target customers consistently but can be easily extended to potential new markets as well.  While perhaps a bit tedious in the initial evaluation and design phases, an effective strategic pricing system can prove to be one of the most dynamic tools for escalating profitability and securing and sustaining market leadership.

 

 We'll talk more about pricing systems and strategies in the near future, particularly conventional strategies, such as Value Pricing (aka "you get what you pay for", as noted above) and pricing conventions (aka why a grocery store can offer a 2 for 1 pricing strategy and a plastic surgeon absolutely can't!).

Thanks for joining me here.  I welcome your comments here, which will be posted.

 - Lucie

 

 

This column has been extensively adapted from a column originally published in Marketing Mix magazine. The NewComm Global Group is the creator and owner of the BestPricing™ strategic pricing system.

 

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