Strategic Pricing: DIY or Seek Expert Help?

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Summary: Unlock the secrets to optimal pricing strategies by blending in-house insights with external expertise. Dive into the pros and cons of DIY vs. third-party pricing solutions to drive profitability and market success.

Pricing isn’t a new topic at your company. It is almost always front of mind because it uniquely shapes a company’s profitability, competitiveness, and overall success. Whether you’re taking your first steps or have made great strides, navigating the complexity of pricing is an ongoing journey, particularly in manufacturing and distribution.

Every company has options for how they want to approach pricing: they can do the work with internal staff, they can outsource it, or they can blend the two and complement their internal efforts with external tools and expertise.

In this article, we will explore the strengths of DIY (Do It Yourself) pricing as well as the benefits that external partners provide. You’ll learn why achieving excellence in this area, and maximizing your company’s performance as a result, requires a blend of both.

Pick Up Where You Left Off

We need to start by level-setting on the fact that nobody starts at zero on a strategic pricing journey. We’ve worked with hundreds of companies in a wide range of verticals and every single one had previously done at least some pricing work on their own.

Some have simply put basic pricing rules in place with margin standards communicated to the sales team. Others have had internal teams that built advanced pricing architectures and statistical pricing engines but recognized that there was still room for improvement beyond their impressive work. To advance further, companies at both ends of the spectrum commonly engage with external resources.

One of the most common misconceptions in this area is that do-it-yourself (DIY) pricing work and support from external partners are mutually exclusive. When companies believe that they must choose one or the other, they’re limiting their potential.

The reality is that companies who excel the most in strategic pricing capitalize on the unique market knowledge found internally and augment their strengths with external capabilities they can’t do on their own.

DIY Pricing as a Foundation

Most businesses establish at least some level of a pricing system on its own. Whether through market research, competitive analysis, or industry trends, companies initially shape their pricing strategies based on their own resources and understanding. Below, you’ll see some common components of a company’s internal pricing function:

Knowledge of Specific Products, Markets & Geographies

Companies uniquely have insights into their product lines, markets, and geographic differences. This intimate knowledge enables them to align their pricing strategies to spur growth while preserving profitability.

Strategic Alignment with Company Goals

Companies who actively work on pricing internally tend to have a deep understanding of market dynamics and customer behavior. As a result, they’re able to fine-tune their pricing strategies to align with customer preferences and strategic goals.

Simple Matrix Models

In-house pricing functions generally build simple pricing architectures, such as differentiating by customer class and product family. These classifications and areas of differentiation serve as the building blocks for more sophisticated pricing strategies.

While some companies are capable of doing this work internally, others have engaged with companies like SPARXiQ to assist. This usually happens when smaller or growing companies lack the internal resources or staff expertise needed to do these foundational steps well.

The Role of Outside Pricing Partners

While the above components of a pricing strategy provide an essential foundation, it’s important to also recognize the limits of stopping there. Here are some areas where the right pricing partner can help you move forward in your journey:

Sophistication of Analytical Models: Don’t confuse a basic in-house matrix with an advanced statistical pricing engine. The right pricing solution provider employs analytical models and tools that go far beyond what most companies can achieve internally. These models can improve pricing accuracy and consistency while uncovering granular areas of your business where you can capitalize on margin potential.

Deep Experience and Expertise: Many in-house pricing teams are composed of team members who grew up in the business. That is extremely helpful for the steps outlined in the previous section, but it’s worth mentioning that these folks are rarely trained pricing experts. Experienced pricing professionals have encountered and solved a wide range of pricing challenges across industries. They bring their collective expertise to the table, offering solutions that have been tested and proven in various contexts.

Project Management Discipline: Outside partners’ experience comes with a clear understanding of how to do the necessary work, who needs to be involved, appropriate timelines, and what to anticipate around the next turn. Too often, important internally-driven projects (pricing or otherwise) end up taking much longer than anticipated and can even reach failure if not managed carefully. 

Unbiased Perspectives: Aside from experience and expertise, outside experts bring an objective, unbiased perspective to the pricing process. They are not influenced by internal politics or preconceived notions. They allow you and your team to make important pricing decisions based on data and market insights. Of course, you can always blend the objective best practices with what you know about your own organization.

Competitor Insights: Outside pricing partners provide a valuable lens to examine what competitors in the same space have done successfully. This helps you get beyond your own tunnel vision and employ best practices that are relevant and helpful to your organization. While third-party partners won’t set your prices based on comparisons against your competition, their extensive market knowledge can help you follow a proven path and align properly in the market.

Blending Internal and External Strengths

As you can see, the key to successful pricing lies in combining what you do best with what pricing experts do best. This synergy allows your company to build upon your own pricing efforts and take your pricing strategy to the next level. Here is how to partner with SPARXiQ to do that:

Integrate Your Data: Collaborate with outside pricing experts to integrate their sophisticated data analysis with your product line, market, and geographic expertise.

Align Your Strategy: Use outside expertise to fine-tune your strategic pricing goals. Experts can help align your pricing strategy with broader business objectives, ensuring that pricing decisions support your company’s growth and profitability.

Advanced Modeling: Leverage the more complex analytical capabilities of pricing experts that capture a broader range of price sensitivity factors to push your pricing models forward. The more sophisticated and granular your pricing engine, the more areas to optimize for competitiveness and margin potential.

Conclusion

Pricing is undoubtedly a journey, and it’s best traveled by taking advantage of both your internal strengths as well as those of outside pricing experts. While DIY pricing provides a foundational understanding of markets and customers, outside experts bring objectivity, analytical prowess, and a wealth of experience to the table.

By combining these two complementary components, companies can deploy pricing strategies that are both data-driven and strategically aligned, ultimately driving greater profitability and success in the marketplace. Don’t limit yourself by choosing between addressing pricing internally and outsourcing it. Instead, it’s about finding the right balance that allows you to maximize your company’s profitable growth potential.

Use this comprehensive guide to help navigate your strategic pricing options. The guide covers the pros and cons of consultants, pricing software, integrated solutions, and even doing it yourself.

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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