Be honest: if you ask a marketer why he/she enjoys Marketing, you will seldom hear “because I love Pricing”. But, if Marketing is about “creating value”, and Pricing is the only mix element with a direct and unambiguous impact on the bottom line, how come this element does not attract more empathy? Read here about the reasons for this lack of love and some of the hidden beauties of Pricing...
Everybody understands that Pricing (and Promotions!) are important. Be too expensive and sales slip to competition, be too cheap and say goodbye to your margins. But the reasons why Marketers often don't appreciate the power of Pricing are manyfold:
- Pricing is not sexy: unlike other marketing activities, Pricing is not as sexy as (e.g.) advertising, innovation or digital. If managers stay 2 to 4 years on a job, they will want to demonstrate a visible achievement to be promoted (or to be hunted). So, many will want to develop the “next big thing”. But few will find it appealing to look at the core variants of a brand and dive deep into the P&L to look for Pricing opportunities...
- Pricing can be complex: Pricing is not just about raising or lowering a price tag. There are analytical, econometric and behavioural aspects which can be complex or not always easy to interpret. And all that in a dynamic environment where competition too is thinking about its next Price move, and in complex value chains (markets, intermediaries...).
- Pricing can be confrontational: Pricing is often a source of friction in a company when there is no agreement on strategies. A Brand Manager may want to increase price because the equity metrics are all OK, but Sales may need unplanned budget to fund price promotions to hit volume targets. And we have not touched the topic of annual negotiations with distributors, retail customers or the parallel import issue...
There are many more reasons that can explain the lukewarm enthusiasm for Pricing Strategy and Management, and we intentionally highlighted just the ones above. But really understanding your brand under through the lens of Pricing allows you to drive profit in a confident and sustainable way.
And now to some of the hidden beauties of Pricing:
- Pricing amplifies profit: the benefits of careful price adjustments and effective promotions & discounts management, flow directly down to the profit line. And when profit is what remains after the advertising, promotions and overhead, any additional revenue improvement has a dramatic impact on bottom line results.
- Pricing drives the right conversations: Pricing is not only about increasing prices, but rather optimising prices. When data requirements, market dynamics, price cliffs, elasticities or value chain margins are clearly understood and quantified, this allows you to have the right conversations and to look for opportunities beyond a mere price change.
- Pricing creates strong team dynamics: when a company builds a Pricing Vision and Ambition, teams cooperate in joint projects. Pricing is too important to be left under the responsibility of one team or specialist only. And if you want to foster internal cooperation make sure the teams’ bonus includes Pricing KPI's.
Pricing is a critical element to deliver your bottom line profit, and with a bit more care, it will deliver unsuspected benefits. In the next newsletter, we will show you how to use Pricing to amplify profit and generate extra marketing budgets!