Making the decision to launch or update a pricing initiative can be intimidating for many businesses. Though it can feel risky to make widespread changes to pricing, companies generally understand the significant financial and operational benefits of doing it well. They’re just not sure how to do it.
It’s easy to think that your sales team can read the pulse of the market and, with their vast experience and knowledge of your customers, instinctively know where to price. However, for many companies with complex pricing environments, salespeople can’t possibly know appropriate price points for every product and every customer. For this reason, implementing a pricing initiative requires a bigger-picture, organizational approach.
Four Components of a Successful Price Change Initiative
In working with numerous companies who’ve successfully driven impactful pricing changes, we’ve observed common themes to their approach that seem to correlate with success. Below are four of the most consistent themes that are present in successful pricing initiatives we’ve seen over time.
1. Define goals and create a plan to measure success.
It’s important to know what you hope to achieve and have a plan to get there. Utilize the SMART approach to goal setting. Each goal should be Specific, Measurable, Achievable, Relevant and Time Bound. A small improvement in margins from price adjustments can create significant impact to the bottom line, so it’s worth investing the effort to detail a plan with milestones and specific deliverables.
The timing of price changes can also have an impact on results, so plan strategically. One best practice is to time any changes to coincide with manufacturer increases to limit visibility and perceived impact to customers. Measuring price improvement can be tricky, so you will need to have a plan for regular reporting and the ability to make adjustments for things like raw material cost variability, market-driven volume changes, and shifts in product mix.
2. Understand your value proposition.
Why do your customers do business with you instead of your competitors? Do you have more items in stock, exclusive access to products or manufacturers, more convenient locations, better service, etc.? It’s important to understand the value your company brings to your customers in order to best define your pricing strategy and ensure that you get paid for that value. Defining and communicating your value proposition across your organization will also help your team respond to price objections and give them the confidence to stand firm when customers push back.
3. Acquire senior leadership support and ownership.
Change is never easy and changing pricing behavior in an organization can be particularly challenging. Executive leadership needs to be fully committed to your pricing initiative and at least partially accountable (organizationally & financially) for the results. Anything less than a unified front creates an environment where the commercial team feels empowered to override or ignore direction on pricing.
Leaders from every department should reinforce the strategy that’s been initiated and communicate the results. It’s especially meaningful when employees can see the impact in terms that directly affect them — like increased profit sharing, reinvestment in new assets, or inventory that make their jobs easier and help them be more successful. Lack of commitment in this area is the most common cause of failed pricing initiatives.
4. Prepare front-line sales and customer service reps.
Sales and Customer Service Teams live in the trenches with customers and are usually the first to hear complaints or feedback on any pricing changes. They can also be the most resistant to change because they fear those negative responses from customers, or feel as though it’s their job to keep prices low for the customer. It’s important to keep the commercial team informed and prepared before, during, and after changes take effect. There’s nothing worse than being surprised by an angry customer.
Set up round tables with managers and their teams to talk through upcoming changes and ensure that they are well prepared with an understanding of what is happening, why, when, and how to respond to the most common questions or challenges they’ll face.
Create FAQs and outline specific responses that the team can use, rather than leaving them to come up with their own answers. It’s not always easy, but if you can make your commercial team feel like they’re part of the process, they are more likely to support and take ownership of it.
While there are many other factors and best practices that can lead to the ultimate success of a pricing initiative, addressing the aforementioned areas will resolve or eliminate a significant number of potential roadblocks.
Position your pricing initiative for success by setting SMART goals, knowing your value proposition, getting leadership on board, and informing your sales and customer service teams of the price changes. Successful execution of these steps puts companies on a path to successful pricing projects and long-term profitability improvement.
Aren’t sure where to begin or wondering if your company is on the right track to managing price changes? Explore our pricing and profitability resources to get started. We’re happy to help guide you in the right direction.
Transform your bottom line with data-driven insights.
Explore a variety of solutions that are available to help you discover and execute pricing and profit improvement opportunities.