In my relatively short time as a business consultant it has surprised me how often people look over all my other services and pick out this one as a ‘tell me more..’ conversation.
But maybe it shouldn’t do. More time than I’d care to admit has been spent trying to avoid, or dig people out of, pricing rabbitholes. Pricing and pricing strategy rarely get mentioned in Marketing – or even Business – plans. And, if they are not addressed, the effect can indeed be like an elephant let loose in your workplace: messy and dangerous!
People I have spoken to who run small businesses quickly concede that they don’t know how to price. Those in the service industries seem to have a particular problem with it. And it’s both ends of the spectrum. For everyone who is dissipated by having to fight on price, there is another who misses out on business because they are ‘too cheap’. It is a common ploy in the restaurant trade to position your most profitable wine second in the price list. Few people feel proud about buying the plonk option on their first date, and most are already contemplating how much the bottles are compared to their local Aldi. At least someone is using pricing to direct customers and enhance profit, so why can’t you? If you know your costs, and what profit you want or need, it also helps.
People in bigger businesses do have pricing methodologies, but these are often approached from a silo mentality: some will operate ‘cost-plus’, and some will want to put the kitchen sink in alongside all other overheads so that no product in the world would hit the black and ‘contribute’. New products may not be in your overhead recovery plan, and what costs really should be in? Should there be a marketing allowance built in? So much to decide, and so many different views. As always, it’s good to agree across the business what the rules are. Conflict is so time-consuming and draining.
The lack of proper engagement with pricing is odd. Firstly, it is one of the 4P’s of Marketing, alongside Promotion, Product and Place. Far too many people and organisations only get as the first of these, yet it is absolutely conjoined with product and promotional and even place strategies. Secondly, it is said that ‘demand exists only at a price’. That is, it is an economics fundamental as the intersection between supply and demand. If you cannot keep up with demand, or if you have a warehouse full of slow moving stock, it is probably pricing that is out of sync. Then there is the issue of ownership. Who ‘owns’ pricing within your business? Is it Finance, Sales, Marketing or the nice young fellow who prints the price lists? Each will have a different view of how to approach it, and if you allow it to become a free-for-all, or the domain of only one function, you have already unleashed the elephant, or – forgive me – put a match to the bonfire.
Does it matter? I don’t think I need answer that. Pricing can be a complex discipline and there are many sophisticated minds and tools devoted to it, but for many businesses, there are two simple places to start: firstly, by asking what control you have over your marketplace pricing – and whether you have a strategy or plan for it. Secondly, how well is that plan communicated and managed within your business? Is there rigour and process in dealing with price lists, price quotations, tenders, and sales activity (including promotional offers) or is it open season? Remember, ‘demand exists only at a price’. If you can’t see the wood for the trees, or the elephant coming towards you, contact me and I’ll see if I can help.