Maximizing time is engrained in the DNA of business leaders and entrepreneurs. Time is one of their most precious resources. So it’s not surprising entrepreneurs and business leaders look to improve how they use their time and results achieved.
When it comes to pricing, finding the ‘right’ time to get started is one of the most common questions asked. No one wants to waste time on low-impact activities.
So when is the right time to work on pricing? The answer is now.
Surprising? Shouldn’t be. Pricing is a material opportunity to help your company grow and thrive. It impacts growth from revenue and profits to customer acquisition and retention.
There are many reasons why pricing is deprioritized or tabled. Not enough time. Not enough resources. Don’t know where to start. The list goes on.
If you have this list consider this fact: the best companies are awesome at pricing. Disruptors from Amazon, Apple and Netflix to more traditional companies like Wal-Mart, Starbucks and GE are dedicated to pricing. These companies made the conscious decision to be great at pricing.
“The best time to start working on your pricing is now.”
If you’re not working on pricing (or have the urgency), there’s a good chance a few of the following are happening at your company right now:
- No one really knows how to build your prices. Worse it’s a guess.
- Competitors effectively set your prices when you ‘borrow’ their prices.
- Your prices don’t reflect the value you believe your product delivers.
- Your customer insight doesn’t translate to building your prices.
- If a competitor introduces or changes prices, your team doesn’t have a plan of action.
- You’re leaving money (and revenue growth) on the table.
- If you’re not building pricing capabilities, you’re forfeiting a powerful growth tool.
Nothing on this list is great. Definitely not for a company looking to grow and build a world-class company. This doesn’t mean you can’t start on high-impact pricing work now. Let me offer some thoughts on how to make your pricing plan more productive.
Be Realistic: Set the Right Expectations
Pricing is hard and takes work; anything worth doing is. So if you’re asking the question of when to start, it probably means you and your company hasn’t worked on it for a while (if at all). That’s ok.
Instead of thinking of when to work on pricing in black or white terms – now vs. later – it is more helpful to think of in degrees and iterations. Like training at the gym, pricing is done in whole or in targeted sections. The key to results is a clear goal or objective, structured plan, and consistency in each activity. Your pricing plan should be no different.
Chances are your company doesn’t have the bandwidth to start a large price management project. Most Fortune 500 companies don’t either so you’re in good company. What can derail companies new to pricing is an overextended scope. While I love the ambition, sometimes there isn’t enough time, attention or knowledge (yet). Know what your pricing ‘win’ will look like and go after it.
Status Check: Identify Where You Are and What You Need
A common way companies approach pricing is assessing whether or not they have a price and does the company believes the price is ‘right’. This only scratches the surface.
An alternative to the simple binary view of pricing is to assess status, requirements and next steps based on the stage of your product or service.
If you’re still developing a product, chances are there is no price. Now is the time to build the building blocks of the price – from the level to the strategy. This requires insights about the customer, your company’s goals and requirements and the market and competition. The process also yields important product development implications. Pricing is a bridge between products and its impact on commercial results and customer experience.
If your product has launched or is ready for an update/refresh, the focus shifts to optimization and iteration. What have we learned about customers, competitors and the market? How will updated or new pricing be received? What pricing tests or trials have been developed?
I speak often about pricing questions and one of the reasons is it changes the mindset for what needs to happen next. The number of steps to a pricing decision is decreased, and for time constrained entrepreneurs and companies, this is critical.
Your X-factor: Leadership
Danny Meyer is one of America’s leading restaurateurs and CEO of Union Square Hospitality Group (USHG). Through USHG, Meyer has created an impressive portfolio of restaurants including the world renowned Eleven Madison Park to the global burger chain Shake Shack.
In 2015, Meyer introduced a new program call “Hospitality Included”, which eliminated tipping from all USHG restaurants. The program was designed to eliminate wage disparity found in restaurants between non-tipped back-of-house (cooks) and tipped front-of-house (e.g. waiters).
The greatest burden of Hospitality Included would fall on customers through higher menu prices. In an already expensive food market like New York, this could mean price increases of 20% or more.
This is a tough decision, but strategic. Meyer understood, not all restaurants and owners have the “stomach for it’, but he was going to get ahead of his competition. A restaurant’s cost structure is, according to Meyer, unsustainable, but by reworking the pricing and business model he positioned USHG to invest in people (recruiting and retention) and the business (future proofing new minimum wage increases). Through this program, he also shapes customer menu price perceptions and the user experience of dining – from how bills/checks to service expectations.
Meyer exemplifies why leadership is critical to pricing and pricing success. Pricing is hard not just on a technical level, but also operationally. One of the five-cores to what defines pricing is leadership and I talk about this every time I’m invited to give a talk, lead a workshop or teach a class. Pricing leadership takes vision and the stomach to make tough decisions that reflect the value you create and the company you want to run.
While there may be no perfect time to start working on your pricing, there is a wrong time and that’s in the future. Pricing requires vision as well as technical and operational execution. For most, this is evolutionary. As your company grows, pricing only becomes more difficult. Pricing takes work, but the work is worth it for your company’s success, so there is no time to start than now.
Photo Credit: Visual Hunt
Interested in learning more?
If you or your team is interested in having a hosted session on your pricing and monetization model, please contact us at: firstname.lastname@example.org