Pricing is the central hinge for a company’s profitability. Many organizations fail to fully grasp the importance of pricing in realizing their profitability targets, as their first focus, almost as a reflex, centers on cost cutting. That may not yield the desired results as it often inhibits growth as a long-term consequence.1 Profit and cash flow have become top imperatives in the current crisis period and its drivers therefore need a closer attention.

A majority of leaders underthink the pricing strategy, leaving the price setting to once in a year ritual. Managers tend to dread any increase in the pricing that they have to implement, and special discounts become a standard occurrence especially in the economic slowdown situation as at present. This however need not be the case. Done smartly managing prices can yield positive results with growing customer orders as well as enhancing your brand image.

While achieving price excellence is a separate topic where many innovative strategies can be adopted, we focus here on some of the ways (not exhaustive) to manage the pricing and increase revenues/profits in the current market situation:

  • Defend your prices – By developing a superior understanding of the customer’s value chain and priorities, you can contribute towards lowering his costs in other myriad ways than a price reduction.
  • Bundling of offer – By adding complementary products you can bundle the offer and sell as a package rather than just stand-alone products thereby realizing similar pricing.
  • Build service offer – A separate services package can be offered going beyond the usual AMC’s or used in combination with a reduced product price offer to recover margins.
  • Peripheral products – Increase your focus on certain peripheral products in your range which are valued by customers but not bought in high volumes, where you might be able to compensate for price reduction of some mainline products.
  • Sales effectiveness – Invest in building the sales team capabilities of customer engagement, relationship management and negotiation, more so with the online model of customer interface.

In the current scenario, where customers usually show higher price sensitivity, sometimes a smart trade-off can be more beneficial. Keeping the price intact while accepting a volume reduction contributes more to the bottom line. Research has shown that an x% price change has a much larger impact on profit compared to equivalent change in sales volume or even costs. In fact, a combination of sales decline and a price decline results in the worst-case scenario.

Unlike a general belief of being the foremost customer need, price of the product in reality is but a secondary consideration. What is of primary importance is the value the customer receives when he engages with your organization versus with your competitors. The higher the value, the higher is the price premium he is willing to pay. As leaders we need to drive various levers in order to create and realize this overall value including a redefined price model.

Pricing is a strategic tool that can not only improve your topline but also add significantly to your bottom line. The key questions for leaders to reflect upon are:

  1. 1. Are you rethinking your pricing approaches on a continuous basis that can result in big wins for both the customer and your company?
  2. 2. What pricing strategies of the above are you deploying to make profitable sales during the current pandemic period?
  3. 3. What all granular data analytics can you conduct to uncover additional opportunities for pricing gains?
  4. 4. How can you improve your strategic positioning and push up the customer’s willingness to pay?

As Warren Buffet once said, “If you have got the power to raise prices without losing business to a competitor, you have got a very good business”. Periodically reviewing your pricing strategy options with a fresh look aided by data analytics can spark new ways to drive your profits.

1. Refer our earlier insight “Controlling the Right Costs” for more details