‘What is a ‘Spinach helpful tip’? – When a friend tells you what you don’t know – especially when you don’t know it!
The Price is Right! Or is it? does your brand and/or product support it’s pricing strategy? In today’s fast pace, competitive environment organizations are faced with new entrants cropping up and falling out every day. Planning and reacting in this type of maelstrom compounds the importance of creating valuable 360 degree communication across your team. Using your Marketing Technology stack, taking full advantage of your social media platforms, open two way communications between your customer service, sales and inside sales teams is critical. Our markets are crowded and messaging can be confusing for our customers don’t loose the value message of your brand.
Winning strategies anticipate rather than react to market threats and opportunities!
One of most important things you have to cultivate and protect is your brand’s value message. One way to permanently devalue and damage your brand is when the ‘Price is Wrong!’ How often has your Executive team or Sales Leadership made an uninformed decisions with their pricing strategies wreaking havoc with a brand.
In the 1990 book Market-Driven Strategy & The Market-Driven Organization by George S. Day. The importance of information gathering as the first step can’t be under estimated. Day wrote, “Distinctive capabilities in market sensing, market relating, and anticipatory strategic thinking. This means market-driven firms are better educated about their markets and better able to form close relationships with valued customers.
The clarity of their strategic thinking helps them devise winning strategies that anticipate rather than react to market threats and opportunities.”
When an organization adopts and lives the Market-Driven Process the information and market intelligence they gather and evaluate allows them to develop ‘winning strategies that anticipate rather than react to market threats and opportunities’ and nowhere is this more important than pricing decisions. In his white paper ‘The Price is right! Or is It?’ Philip Otley a Senior Partner at Prophet, a strategic brand and marketing consultancy discusses commonly an accepted financial ‘rule of thumb’ leader’s pull out of their pockets when they’re looking at managing their P&L’s and working with their financials:
The commonly accepted rule of thumb across many sectors is that a one percent reduction in operating costs will create a three percent improvement on the bottom line. A one percent improvement in realized price, however, is likely to create a 10 percent or better increase on the bottom line.
As Forest Gump would say, ‘I’m not a smart man, but I know what improving the bottom line is!’ and a 10:1 difference that’s as good as a bowl of Bubba Gump Shrimp Gumbo on a cold day. Why would an Executive Team be hasty regarding pricing decisions?
Otley goes on to speak about the cause, and I would say when executives and Sales leaders get that proverbial ‘deer-in-the-headlights’ look right before they dart out in front of the competition driving a big diesel rig:
Despite this, short-term trading pressures often create a temptation to compete on price to get needed performance bumps. But the cumulative effect of discount can be severe: Pricing is a very clear signal around the value of the exchange and the value that the company wishes to place on the brand.
Philip Otley refers to organizations regarding their maturity and sophistication in relation to how they manage their pricing. For our discussion we will define maturity and sophistication by the adoption and implementation of Market-Driven Process. Otley went on to outline the following pricing strategies that non Market-Driven Organizations follow:
At the least sophisticated end is cost-based pricing: “It costs us $XX to make this product, so $XX plus 30% is our price.” A surprising number of businesses still use variations of this approach, which doesn’t reflect the nature of demand or value of the product. It just reflects the input cost and a notional “rent” factor.
Here we have an organization that is not utilizing the Market-Driven Process as George S. Day shared in his article ‘What does it mean to be Market-Drive?’ ~ “… being market-driven is about having the guidance systems and discipline to make sound strategic choices and implement them consistently and thoroughly.” This is never more apparent that when an organization looking at pricing decisions.
Otley continues in his article looking at organizations further along the maturity curve and describe, ‘competitive-based pricing’:
“If all my competitors are charging $XX, so will I.” New Market entrants might charge $XX minus a few percentage points. Those that believe their product or service is somewhat stronger than competitors will add a slight premium to their pricing. Probably the majority of organizations across industries follow this path, with price-matching widespread.
Remember, the Market-Driven Process and Market-Driven Organizations needs to leverage existing in-house and external data to better understand customer and product lifecycles and purchasing habits that will then trigger promotional/marketing programs and contract initiatives that move customers and adapt with them through the customer lifecycle, reducing attrition and driving long-term customer relationships.
Here is where we find alignment with Otley as he writes:
At the pinnacle of the curve are those businesses which are sophisticated in their pricing practices because of two particular areas of focus. First, they develop a high level of understanding of their market segments, not just in terms of their demographics, but, more importantly in terms of their behaviors. That, in turn, informs their ongoing measurement of customers’ responses to pricing moves, and how they’re influenced by any numbers of factors- competitor moves, advertising, or promotional campaigns and the state of the overall economy among them.
As we go through the process of defining a Market-Driven Organization please provide your insights and thoughts so we have a more robust dialogue and don’t walk around with spinach in our teeth.
Q: Where is your organization on the maturity curve and pricing sophistication?
Q: How does your organization take advantage of competitors who are not mature on the curve?
Q: What are some of the long-term implications for organizations that don’t use the Market-Driven Process and implement knee jerk pricing reactions?
What is a ‘Spinach helpful tip’? Have you ever walked around with something in your teeth, and no one tells you. A real friend takes you to the side and tells you. It may be embarrassing at first but not as bad as finding out at the end of the day when it is too late to do anything about it. Especially if you are trying to create a positive brand image and lead your organization to success!