Pricing strategy: do you know if you need help?

Most companies are very clear when they need help with their strategic planning, customer loyalty, distribution, or consultative selling processes, among others. But very few companies realize they have a problem with the variable that most directly affects their bottom line: price. There is a short questionnaire used to determine whether a company needs help with its pricing strategy. In general, organizations that have completed it answer “yes” to at least one of the questions.

In a price war
First, there is a large number of companies that say they are in the middle of a price war, acknowledging they do not know how to react strategically to competitive threats. From mass-consumption categories such as toothpaste and chewing gum, to industrial sectors such as cement, examples of fierce price wars can be found—not only in Colombia but throughout Latin America.

We live on promotion
A second group of companies recognizes that their customers only buy when their products or services are on promotion. Many retail companies, such as supermarkets, have spoiled their customers through the tactical use of promotions, failing to use them as value creators within the pricing strategy.

Customer haggling
A third group of companies that participate in industrial markets says they feel victim to difficult customers who always want to negotiate better discounts. If in mass markets the problem is the indiscriminate use of price promotions, in industrial markets many companies fail in customer management, granting discounts without strategic criteria, as in the case of corporate telecommunications services.

Cost-based pricing
There is a fourth group of companies that admits to relying only on their costs and competitors’ prices to set the price of their offers. However, they feel that such a practice prevents them from capturing all the value their products or services provide. Companies that tend to respect a predetermined margin generally find themselves unable to serve the most price-sensitive customer segments, while companies that base their prices on those of the competition see their profitability and customer retention capacity reduced in the medium term.

Leaving money on the table
Finally, there is a group of companies that feels they are failing to capture all the potential value in the market. These are the typical companies that, by trying to serve the entire market with a single price level, exclude the most price-sensitive customers and “leave money on the table” by underselling to their highest-value customers.

Do you need help?
If you feel you belong to one or several of the groups described above, don’t worry. You’re not alone. Large, medium, and small companies alike have become increasingly aware of the importance of having strategic management of their prices, where the coherence between their competitive, marketing, and pricing strategies is evident. Realizing that you need help is the first step to profitably serving more segments and maximizing your company’s ability to create and capture value.