“We have to do something- we are losing customers because of our pricing!”
From time to time a CEO or business unit manager receives an email with the subject related to what we call “Reactionary Pricing”. Reactionary pricing is a very real danger in many businesses and industry environments as at a certain phase the sales force becomes concerned they are losing business to a competitor or substitute due to pricing errors.
Pricing is an important part of the business mix however it is less important as an “order winning” criteria than many companies think. In surveys we have conducted as Thinking Dimensions over the past five years particularly in B2B environments we find pricing is often the third or fourth most important criteria and certainly overshadowed by product/service performance, lead times, after sales service, and service recovery programs.
Before falling into the “trap” of reactionary pricing which can be a downward spiral the first area to look at is historical data and particularly ask the following questions:
1) By Product and Market Segment- what is our win rate today and historically?
2) How has our pricing evolved in the past 36 months (month by month development)- and how does that compare to the industry segments in general?
3) What are the demand and pricing trends of the top 30 customers we supply and how does this compare to their competitors in general?
4) What value added services do we provide to our customers that they recognize and are prepared to pay a premium for?
5) How do our top 30 customers consider us as a supplier- today and historically?
Prior to any reactionary pricing decisions implementation it is important to get together (virtually or in person) with your key management team and review objectively the data and insight dervied from the 5 questions above. It is important to remind the sales teams that cutting pricing is a maneuver which is easily replicated also by competitors and that rarely sustains long-term profitability.
Sustainable profitability is the only way that your company will be able to continue to invest in people, processes, and products/services which meet the future needs of your current and future clients- and for this reason above all others it is important to consider how Reactionary Pricing will serve you and your customers (internal and external) today and importantly in the future.