Price is the only marketing mix element with an immediate impact to the bottom line of the P&L. Yet, it is a difficult topic, often requiring tough negotiations with customers and distributors, overcoming lack of internal alignment and ownership, and not least, the challenges of data visibility in terms of promotional impact, discount and rebates, i.e. do you really know what you are giving away on price ? This can cause dangerous value erosion. So, how can you reach “Pricing Heaven" ?
There are 5 steps to unlock the power of pricing. The Brand Reveal experience suggests that these include a blend of both management and technical skills.
- Perform your pricing assessment with your markets and distributors. This should be in-depth and include basics such as brand responses to price changes, promotions effectiveness, market price tiers, etc. Beyond market dynamics, understand the current price strategy for your brands versus the actual implementation.
- Understand the P&L amplifier effect. Get under the skin of the value chain and the sales & promotion budgets. Price discount budgets often represent a double digit share of net sales. Consequently a small improvement in price and promotional effectiveness can have a dramatic impact on operating profit (which can be reinvested…). With the size of prize clarified, the “ambition” takes form, sharpening the appetite to deliver a step change in performance from price.
- Prioritise the key business questions, that "prevent you from sleeping at night". For instance, competition has cut prices, what do you do? You need to increase prices, but how and by how much? Which of your promotions really work? How do you best deal with a duty / tax increase? With priorities clarified, the initial elements for a pricing strategy are there.
- Put in place the required pricing skills & tools to address the key business questions. Such skills & tools include price elasticity analysis, P&L ready reckoners to simulate price variations impact, promotion effectiveness tools, strategy templates and key performance indicators.
- Establish your Pricing Way of Working. Pricing Strategy & Management works best with cross functional teams from sales, finance and marketing rather than a single head of pricing. This allows the team to get a good grip on the many aspects of pricing, to integrate them in the overall strategy, and to ensure proper implementation & learning.
Pricing Strategy & Management is not just about “increasing prices” (actually, a price decrease or portfolio gap optimization may also be advisable). This is a fresh and holistic way of looking at business. Understanding where you are, where you would like to go, building the skills and ways of working on pricing, is the way to unlock the power of pricing.