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How to Coordinate Your Pricing Efforts

Posted by PriceBeam on February 22, 2017

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This post is part of the article series: "How to Use Willingness-To-Pay for Optimizing Prices, locally and globally". You can find the rest of the articles here.

In previous blog posts, we have emphasized the importance of developing a value-based pricing strategy, where your customer’s willingness-to-pay determines the price you charge. If you haven’t read this article yet, I suggest you do that first: Value Based Pricing: The Secret to Profit Maximization

However, if you have found the right price for your product or service, this article will cover the next step towards reaping the rewards and realizing all potential profit: coordination of your pricing efforts.
It is crucial to understand that pricing doesn’t exist in a vacuum. Implementation of a new price should be done across marketing, sales and product development too.
 
Collaborate with Your Salespeople
In a previous post, we made the case that your salespeople shouldn’t be the ones developing your pricing strategy. Pricing strategy is first and foremost about strategy and salespeople are so close to the customer that introducing some bias into the development of the pricing strategy is inevitable. After all, they’re the ones facing the countless rebate requests and customer uproar.
That being said, your sales team is executing your pricing strategy and for that execution to be successful, you must work closely together with them and build a framework:

 

  1. Your salespeople should understand your pricing strategy. If it’s value-based, they need to understand what value they should communicate to the customer; that is, develop a striking customer value proposition. Moreover, if you recently increased your prices, you need to tell your salespeople how they should respond to customers inquiring about said increase, hereunder how they justify the price increase.

  2. It is important that you incentivize your salespeople to stick with your pricing strategy. Initially, most companies set their prices too low and often, a well-developed pricing strategy will involve increasing your per-unit profit and decreasing your sales volume. Yet, if your salespeople’s performance is measured in terms of revenue, they will have the incentive to deviate from your pricing strategy and offer discounts to customers willing to pay the full price. The solution is simple - measure sales performance in terms of profit rather than revenue.

  3. Even with a value-based pricing strategy, discounts can be necessary. Though you have set your price based on a narrow segment, your segment will not have uniform values and needs. Price-sensitivity in your segment differs and you need to provide your sales team with guidelines (i.e. personas) to help them identify different levels of price sensitivity so they can discount, or not discount, accordingly.

 

Have Marketing Understand the Value-Drivers
Developing a proper pricing strategy will inevitably involve researching your customers’ value drivers. That is, why are your customers buying your product rather than that of your competitor?
Often, it turns out your customers aren’t buying what companies think they’re selling. The value drivers are much different than anticipated and your marketing efforts should be changes accordingly:
 

  1. Clearly define the value drivers for your segment, and for sub-segments if necessary. In that way, your marketing can prioritize these value drivers in the communication.

  2. Create marketing material that addresses this value-driver. A prominent example of a company whose marketing efforts are heavily focused on new value-drivers is Airbnb. They realized their customers didn’t just care about the homes they rent, but also about the hosts and meeting new people from other cultures. This is why they spent the $5 million on a Super Bowl commercial that solely addresses this value proposition. Homes aren’t mentioned once.

Develop Products Your Customers Love
This point may seem obvious, but in fact, a lot of product development is done with complete disregard to the hard facts on customer preferences and value-drivers. In order to maintain your current price level or increase it (and your profits) in the future, you need to make sure that the value-drivers are taken into account when developing your product.

You should place a numerical value on different product features. A prioritization isn’t enough for product development as you want to be able to calculate the ROI on a potential investment into developing particular product features. This numerical value can be derived with a conjoint analysis which is incredibly effective for analyzing customer preferences. This will not only help you increase your prices, but also increase customer loyalty. Your customers will appreciate that you continuously strive to improve your product on the features they care about, and increasingly view you as a market leader within your niche. 

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Topics: Article Series 1: Using WTP for Price Optimization

Written by PriceBeam

PriceBeam
PriceBeam posts regular guides, articles and news related to pricing and strategy. Go have a look!