You’ve identified pricing as an initiative for 2021 – you know there is opportunity to boost profits through pricing, and your business agrees. Now what? Now you have a lot of questions to answer. What’s your overall pricing strategy? What do you do first? What’s your timeline? How do you measure impact? How will you define success?
We would argue that focusing on pricing as an initiative for a given year is short-sighted and unlikely to set your business up for continued success. Instead, here are three ways to ensure pricing becomes a profit center for years to come.
#1 Consider Long-Term Goals
Working to meet a one-time pricing goal – for example, generating $5.2M of price impact for 2021 through price increases – may result in a temporary performance boost and achieve an annual business objective. However, such an event is not likely to have a lasting effect on the way your business executes or on your long-term profitability. Once the goal is hit, how will you continue to strive to maximize pricing? When thinking about pricing, it’s important to start with the end in mind – what objectives are most important to your business in the long run, and what is your strategy to achieve these objectives? What unique challenges does your business face?
Reflecting on the original example, perhaps your business is heavily tied to commodities that see frequent movements. By realizing $5.2M in price impact this year, you may cover expected cost changes, but how will you manage fluctuations the following year? Can you be confident that $5.2M was the right target and that you didn’t leave money on the table? Setting a price impact goal is an important first step, but making sure you have a pricing strategy to manage cost fluctuations not only within the year (or month or day) but year-over-year is where you will find continued and sustainable growth. The best pricing strategies are those that align with your overall long-term business goals and are dynamic to your unique challenges rather than those that offer short-term rewards.
#2 Make Pricing a Priority
Ongoing commitment to your pricing strategy is critical to the health of your business. The easiest way to demonstrate that pricing is a priority is by talking about it and taking action – regularly. For your commercial or sales team, that means checking in often, not only to look at the numbers but also to share which tactics worked with clients and which didn’t, to celebrate and analyze wins, and to thoughtfully assess losses to craft a better approach for next time. For those supporting the technology side of your pricing strategy, that means digging into the data to see what adjustments to the metrics or models need to be made based on changing business conditions or results, or brainstorming ways to make processes more efficient and user-friendly. Making pricing part of your ongoing, everyday conversation communicates to your team that pricing is a priority and that you want to help them achieve their pricing-related goals – both for their own benefit and that of the company.
#3 Transform Your Culture
How do you sustain your focus on pricing and enable your strategy to evolve over time? Creating a center of excellence – a combination of the right people, processes, and technology – will ensure that you continue to advance on the pricing journey. Processes and technology that are easy to use and adaptable will encourage buy-in from your team. Employees whose responsibilities include managing and communicating pricing efforts and progress will help your organization understand where you are today and focus on where you’d like to be. Coaching your team and implementing value-added processes and technology will allow your organization to realize the margin-driving benefits a transformative culture of pricing offers.
Make 2021 the year you begin your pricing transformation, not institute a one-time pricing event.