Pricing data can be dense. If no one is reviewing it, managing it, comparing it or scrutinizing it, it’s likely your organization is missing price leaks you could otherwise put a stop to. From volume discounts to price overrides, profits are lost and margins are cut, but do you know by how much? Can you identify your true pocket price for your top selling products?
If not, you may have a data visualization problem. But like any problem, a solution exists, you just have to seek it out.Here are four ways to gain better visualization into your organization’s pricing data.
1. Establish Pricing Ownership:
In most manufacturing businesses, pricing is a responsibility divided amongst marketing, sales, finance, product teams and other executives. But whose job is it to see the big picture? If you can’t validate hiring a pricing manager, you can develop a Pricing Ownership Matrix.
In a decentralized customer environment where no pricing leader is appointed, you can define pricing area ownership. Consider catalog and list pricing, discounting, key accounts, geography and business divisions.
Then ensure these “area owners” meet often to talk about the big picture of pricing.
2. Search Out Discounting Visibility:
Do you know how many discounts your sales team is offering? How about your customer service team? From freight and volume discounts to rebates and “long-time customer” pricing, the hits to your margins add up.
Obtaining clear visibility to your discounting structure through a Pricing Waterfall is a powerful way to determine pricing leaks and non-value added discounts. Discover how to determine your true pocket price in the this1-minute video.
3. Determine Product Value:
Your organization deserves to be paid for the value it creates. But do you know which products create the mostvalue for your company?
Most businesses focus on getting the price they set for each product, but are often disappointed when customers won’t agree to it. More important than “getting the price” is balancing what the right price is.
Some products won’t create a lot of value for the brand—perhaps they are not differentiated enough when compared to the competition. Those products will fetch a lower margin. Other products may create a lot of value; they may be highly differentiated or solve a problem your competitors can’t. Higher margins can be sustained, bringing in higher revenues.
Once you determine and utilize this information, your pricing strategy can become far more sophisticated.
4. Utilize Technology:
If you are using an outdated ERP system or BI tool, you may not be seeing the entire pricing picture. While you can track list price and invoice price, what about analyzing pricing and mix analysis? Without actionable information from your tools, how will you identify outliers, see pricing variations among peer groups or be immediately alerted to pricing variances?
While there is power in your data, you must utilize the properpricing applicationto discover that power. To truly visualize your pricing data in the most efficient manner, you need a pricing application that can stop price leaks before they become dangerous to your bottom line, predict customer churn and identify the root causes of profitability issues.
The Bottom Line
By establishing pricing ownership, seeking discount visibility, determining product value and utilizing technology, you can gain the pricing data visualization you truly need. In fact,one manufacturer worked with INSIGHT2PROFIT to gain better visualization and was able to realize an additional $2.3 million in revenue over 16 months.Learn more in our case study.
Years ago, an Ohio-based specialty metal business made the decisionnotto charge for freight costs, even though their products were extremely heavy. The rationale? None of their competitors were charging, so they couldn’t either.
In reality, this company was No. 1 in the industry, so all those competitors were actually just followingtheir lead. When the company realized what was going on, it had the opportunity to change the policy for its entire industry.
And so it did—collecting more than $1 million in additional revenues.
Smart companies know pricing strategy isn’t just about the price on the invoice.To have an immediate impact on your bottom line without formally raising prices, here are three areas to tackle first.
1. Freight Costs
If you’ve been operating for decades, your freight policies have probably been in place just as long. Maybe you don’t charge for freight at all, or fees are the same across all territories—or you charge the same as you did 50 years ago even though shipping rates have risen dramatically.
To start, ask yourself:
When was the last time our freight terms were updated?
What is our justification for our freight policy?
What are our competitors doing in this space?
This line of questioning can help internal stakeholders determine if there’s opportunity for improvement without much effort, as the aforementioned specialty metal business discovered.
2. Rush Orders
When you place an order on Amazon.com and you want 2-day shipping, you understand you’ll have to pay premium pricing—in this case,$99 for a year of Amazon Prime.
Your customers realize this, too. Yet many manufacturers and distributors don’t charge extra for rush orders.
If your lead time is two weeks, but your buyer needs his order in three days, are you charging extra? In order to get that order to the buyer within his limited time constraint, you’ll have to disrupt your operation, move around other orders and pay higher shipping costs. You might even put other orders at risk. You should be paid for those efforts, but many manufacturers don’t actively seek compensation.
Remember, if a buyer needs an order faster than usual, they’ll gladly pay to get it sooner.
3. Volume Discounts
It’s natural to want to offer discounts to your biggest customers, but if you don’t have a discounting strategy in place, the practice can steadily erode your bottom line.
Discounts shape your customers’ perception of your pricing: With every discount your give, the lowered price becomes the new standard. The next time that customer calls with an order, she will expect that same price, even if the order is only half the size.
The key here is to communicate early and often regarding volume discounts. When buyers understand why they are receiving discounts for aspecificorder, they will begin to understand the rationale behind your invoicing and, therefore, not expect discounts with every order.
Additionally, the threat over-discounting poses on profit often goes undetected since most companies don’t truly know how much profit is lost when sales reps offer discounts. Your company does not need to ban discounts all together, but a discount ceiling should be put in place to keep your profits from decreasing too drastically.
Start Small (and Risk-Free) with Freight, Expedites and Discounts
Raising prices throughout each of your product lines can be a highly complex process that demands a lot of analysis. Freight, expedites and discounts are areas you can impact quickly without upsetting current customers.
Start by identifying improvements that can deliver the most profit with the least amount of risk and effort. The extra revenue you uncover can be used to support larger-scale strategic pricing efforts in the future, such as increasing product prices, which will require more time, effort and commitment.
Bad pricing practices are more common than you’d think. Find out why bad pricing happens to good companies in our free guide.
