Maximizing Pricing Power
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To make sure your pricing reflects your worth, capture and articulate the value you deliver.

How does your company define what it’s selling? There’s more to it than the products and services you provide: you need to understand what your customers value in doing business with you. Uncovering the complete answer can unlock increased profitability for your business and make pricing a strategic element of your overall revenue management.

“What need are you fulfilling for your customer? Define it very specifically,” says Lydia M. Di Liello, founder and principal of Capital Pricing Consultants and a member of the Professional Pricing Society’s Board of Advisors. She advises against using cost accounting as a basis for calculating price because it doesn’t provide a means of adjusting for value or variables such as a “cool factor” that may have the potential to drive price up.

Within the B2B space, creating a correlation between price and value begins with quantifying your impact on customers’ business, says Chris Provines, CEO of Value Vantage Partners and an adjunct professor at Rutgers University. That impact likely falls into one of three categories: economic, emotional, and strategic. “Firms need to think about their value in these three dimensions,” he says. “What do I do economically? What do I do from an emotional standpoint that’s really different from the competition? And are there things I do that help my customers compete more strategically? You can’t just create value and not capture it. How do you capture that for pricing? Hopefully, those services are aligned with your cost to serve.”

Once you’ve captured and articulated your value, it’s essential to make sure that your sales team understands that perspective and incorporates it into price negotiations. “The dynamic between pricing and sales is critically important but often overlooked,” Di Liello says. “I have seen pricing be most effective and profitability grow most dramatically when that relationship is nurtured in both directions.”

That’s especially important when dealing with larger businesses whose buyers are focused on price and have no direct exposure to the benefits your company delivers to the customer, Provines notes. “You can’t just set prices based on value. Your sales team’s ability to sell the value you bring and negotiate effectively is really how you capture the value.”

Recognize, too, that your value may vary from one customer, industry, or geographic region to another. That’s why market segmentation becomes more important as your company grows: it allows you to distinguish among customer types and zero in on those who hold the most profit potential for your business.

Some customers seek a partnership and value that relationship over a competitor’s lower price. Conversely, price buyers are entirely focused on budget parameters and won’t be swayed by value adds. Others will assess your value relative to that of competitors and expect you to negotiate terms, while a fourth segment is concerned not with price, but rather with which company will deliver the greatest convenience.

Understanding those segments and assessing how each one’s expectations mesh with your business model equips you to maintain the most profitable customer mix. It helps not only in recognizing which customers are a poor fit, but also in identifying parallels between your products or services and markets that offer greater profit potential—opportunities that you might otherwise miss. By approaching pricing strategically, you increase your company’s potential to achieve long-term growth.

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This information is general in nature and is provided for educational purposes only. Information provided and statements made by employees of Regions should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Regions encourages you to consult a professional for advice applicable to your specific situation. Information provided and statements made by individuals who are not employees of Regions are the views, opinions, or positions of the individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Regions. Regions makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.