Align Your Pricing to Your Place in the Market

Align Your Pricing to Your Place in the Market

Summary: Understand the importance of aligning a company’s pricing strategy with its market identity and value proposition, highlighting the common misalignment in companies that prioritize service and expertise but fail to reflect this in their pricing. The article emphasizes a strategic pricing approach that captures value, enhances margins, and maintains competitiveness, urging companies to build pricing systems that accurately represent the exceptional service they provide.

Is your company’s pricing strategy aligned with the reasons your customers buy from you? Having supported numerous manufacturers and distributors to optimize their pricing strategy over the years, we’ve observed a common misalignment.

Many of the companies who claim that their customers are loyal to them because of above-and-beyond service and value-added expertise commonly resort to pricing their products to undercut the competition. This approach contradicts their market positioning.  It’s important to know your market identity and develop a pricing strategy that reflects it.

Why Do Your Customers Buy from You?

One of the first questions we ask companies considering a strategic pricing initiative is “why do your customers buy from you?” The answer to this question reveals so much about their market position and value proposition. Is the company in a hyper-competitive space or are they the “only game in town” in their geographic footprint? Do they have a commitment to having everything in stock when competitors commonly drop-ship a few days later? Do they have a great relationship with vendors who funnel opportunities their way because of their strong reputation? Do they know the local markets better than anyone else and maintain close customer relationships?

Self-reflection on these questions is as important to companies as it is for us to understand their positioning. Most companies attribute customer loyalty to their outstanding service, viewing their teams as trusted advisors and experts. This pride in service demonstrates their commitment to delivering value.

However, we virtually never hear our prospects claim that their customers buy from them because they have the lowest price, even when pricing behaviors suggest a different story.

The Disconnect Between Price and Value

There’s a common disparity between the value companies believe they offer and how they price their products. To be clear, I don’t doubt that that many companies deliver excellent service, and their customers are loyal based on great customer experience. The disconnect here isn’t a referendum on the brand promise or customer commitment. More often, companies simply aren’t getting paid for their excellence because their pricing model doesn’t allow them to.

If you’ve built your business by being a trusted resource and have a team of technical experts that deliver best-in-class service, don’t change that. Just make sure that you’re making money doing so. Chances are, delivering that extra level of support to your customers doesn’t happen for free. Having quicker turnaround times, being a one-stop solution, and providing extra customer touches all come at a cost. This level of support also adds value for your customers, which is why they buy from you.

When you decide that you want to get paid properly for being the best at what you do in your space, it’s time to look for areas where you can capture some of that margin. Of course, building the right pricing structure for your business isn’t as easy as increasing prices across the board. That’s why it’s important to pick the spots where your customers are less sensitive to price changes and do your best to stay relatively competitive in areas of your business where customers are comparing prices with your competitors. 

Boost Margins While Staying Competitive

With the right pricing system, companies can stay competitive on their core items that are being cross-shopped while making up the difference by adding margin on the long-tail items. This approach is common across industries and can significantly enhance profitability. In fact, your competitors – that you feel you need to aggressively price against – probably do this already.

When we analyze a typical distributor’s transactional data, we commonly find that as many as 60-80 percent of their SKUs are not very sensitive to price changes at all. These items aren’t sold first or most often, aren’t purchased frequently, aren’t negotiated and aren’t subject to competitive pressure.

The key is to identify and segment these products carefully based on customer buying behavior, and not solely based on how much or how often you sell them.

Get Paid for the Value You Deliver

Establishing yourself as a best-in-class provider in your space justifies a pricing model that reflects the value of your services. Customers expect to pay you for the reliable delivery, friendly customer service, timely response to inquiries, and wealth of expertise that your company uniquely delivers.

Build a pricing system that finds extra margin points in key spots within your business. You don’t need drastic increases to the competitive items your customers are cross-shopping, but you can find margin expansion along the edges that ensures you are getting paid for the differentiating service you offer. Your sales team is probably already selling the value your company delivers, they just need to transition to the mindset of getting paid for that level of service.

Are you looking to improve your pricing system to gain profitability while staying competitive? SPARXiQ has helped countless companies make significant bottom-line gains without sacrificing revenue. Let us help you accomplish the same.

Download this eBook to learn how to strategically price your most visible products, while maintaining a competitive place in the market. 

PriceGPS™

Strategically price every customer and product.

PriceGPS™ provides data-driven recommendations to help distributors and manufacturers maximize their margins and allow your sales force to focus on serving customers and delivering value.

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