Frequent price adjustments are poison to the company’s long-term earnings, explains one of Denmark’s leading researchers in pricing. The good news is that you can increase your profit and reduce the pressure from customers and competitors with relatively simple steps.
Does your company have a pricing strategy? If not, read this.
Most companies do not actually have a deliberate strategy for how they price their products. The sales department runs things on an ad hoc basis, some customers receive special treatment and no one really thinks about the long-term consequences.
According to Associate Professor Birger Boutrup Jensen, this ad hoc approach is a dangerous path to embark upon, where you risk stifling the company’s future earnings.
“Many are prone to making hurried price adjustments each time a competitor lowers the price or a customer wants a price reduction. It’s dangerous, and in that light it seems strange that so few companies work with this obvious and underrated focus area. Doing so can increase your profit significantly,” he explains.
Sales Director Lars Kestner from Bros. A & O Johansen, who just attended a course on value-based pricing together with 10 of his colleagues, agrees.
“This is absolutely necessary for all companies that want to stay in business in the future. Otherwise they will be cast aside. Today all prices are transparent and everyone knows what things cost at different locations. For many sales people, this is probably a path we must be ‘forced’ down, because without a clear pricing strategy things look bad for the business,” he says.
According to Birger Boutrup Jensen, profitable pricing is based on thorough analyses of the interaction between the three key areas: Customers, competitors and costs. Value-based pricing is about controlling the customers’ behaviour proactively rather than only adapting to their behaviour. This is achieved e.g. via knowledge about customer value, competitors, price segments and pricing policies for managing expectations.
On his one-day course, he encourages companies to get to know their customers as well as they possibly can. Detailed knowledge about the customer’s needs is one of the most valuable resources when your company prices its own products and services.
“It’s always a good idea to conduct interviews with your key customers to identify the most significant value drivers and find out how your products and services create value for the customer. Find out exactly how your services help the customers in their everyday life and which consequences they would face if they lost your services and products,” says Birger Boutrup Jensen.
Birger Boutrup Jensen’s one-day courses at Aarhus BSS are currently very popular. Most recently, the course in Copenhagen on 18 November 2016 sold out weeks in advance, and for the next course in Aarhus on 27 January 2017 at Aarhus BSS, Aarhus University more than half of the places have already been filled. The registration deadline is 13 January 2017.
The next course in Copenhagen will be held on 2 June 2017.