The unfortunate reality is most businesses do not review their pricing. This includes all facets of pricing from the pricing strategy, the pricing and monetization models used, and the pricing levels.
When price reviews do happen, it is often reactionary. A result of someone else (read: competition) taking a proactive step with their pricing.
This is a lost opportunity – financially and competitively. Most other parts of our business – from marketing campaigns to product development – we would never allow our team to avoid reviewing progress and improving. We spend countless hours and weeks, looking to optimize and find new opportunities.
Unfortunately, when it comes to one of your company’s most important growth drivers and mechanisms to monetize products, pricing does not receive the attention it deserves.
Manage Change In Your Business
Change is a constant variable for operating and growing a business today. What that change is, and how that change impacts your pricing is a critical function of the price review.
Changes in your market: Your market is constantly changing. New competitors emerge. New products or services are offered. Prices for these offers change or some promotion and discount is offered; changing customer perceptions. As the market around you evolves, regularly evaluating the market in your pricing context can help you not only keep your pricing current but to identify potential opportunities for your own offering.
Changes in your business: As much change as there may be in your market, your growing business also experiences constantly change. These changes include new products and services in the product roadmap. Operational changes in how you deliver your products and services. Changes in business-level targets (e.g. revenue, customer segments) can also influence how you price. Without a regular review, pricing can get out of sync with the changes your business is experiencing internally.
Finding opportunities to change: Finally, a pricing review gives your business and leadership team some time to create and execute untapped pricing opportunities. This can be new a product offer design, changes in the business model, or new price levels. By bringing in regular price reviews you bring visibility to new pricing ideas and enabling your company to expand its capability to create value.
Overcoming Barriers To Pricing Reviews
There are many reasons why companies do not do price reviews (sometimes for years), but two of the most common barriers we have seen is not enough time and building process for a price review.
Yes, price reviews take time. Time to prepare the right information to review. Time to assess and create actionable steps forward. It’s also potential time away from other business activities such as product development, sales, marketing, fundraising, and recruiting. What many business owners forget is as a commercial enterprise, your price is one of the core levers your business uses to make money and (hopefully) earn profit. Not allocating time to gauge the health and competitiveness of your pricing goes against this purpose. Having structure around the price review will address some of the unknown behind the time price reviews will actually take.
Another common barrier for businesses to reviewing price is not knowing what and how to review. This is a fair concern especially if the original price setting process used either a guess, cost-plus or competition-driven approach. Again, not knowing cannot be an excuse to not do a vital function for your business.
Here are some steps to create a sustainable pricing review process.
Designate an owner: Selecting a member of the team to own the price review is a powerful statement of how important this is to the company. Having an owner to the pricing review is also critical to creating accountability and integrity to the process. More simply, the business knows who is going to organize the price review, collect the relevant information, and implement any subsequent action items from the review.
Frequency: In an on-going HelloAdvisr pricing study of growth companies, more than 60% of respondents stated they reviewed pricing on an ad-hoc basis or not at all. Setting a price review schedule will create discipline but also predictability for the business and team. Not all companies need to review pricing weekly or monthly. Some can review prices quarterly or annually. Be honest with yourself about how your market operates. Side on a caution early on by reviewing more rather than less. It’s easier to lose pricing power than to gain it.
Create review themes: Not every review has to be exactly the same. There will be some aspects – such as price competitiveness – that will carry over from review to review, but other reviews can include specific themes to ensure the business is leveraging the full opportunity of pricing.
One example of review themes for a company on a quarterly schedule can look like this:
- Quarter 1: Pricing opportunity theme – Based on new products and objectives in the new year, what pricing opportunities can be introduced in conjunction.
- Quarter 2: Competitiveness theme – Assess competitiveness of the company’s pricing, pricing-based competitive strengths, and weaknesses.
- Quarter 3: Execution theme – Progress made to operationalize pricing including pricing studies and tests.
- Quarter 4: Achievement theme – Assess progress made on the pricing strategy and overall. business targets, key learnings, and areas of improvement.
Information to collect: Peter Drucker – the founder of modern business management and the development of management education – famously said, “If you can’t measure it, you can’t improve.” For a price review of the actionable, it must be based on data and information. This is not only the current pricing itself, but competitor prices, promotions and discounts used, price achievement to date, overall business performance and targets, and on-going ideas for new pricing offer designs and models.
Action items: Price reviews are not meant to be in a vacuum. The goal of the review is to take learnings and translate them to action items. There can be open questions that require additional investigation. The company can need a new pricing research study that needs to be designed and launched. Focus on making these reviews actionable to drive results.
Final Thoughts
Like other parts of your business, pricing evolves and changes. Without keeping an eye on what your pricing is doing for your company’s goals, the harder it is to use pricing as a growth tool and competitive advantage.
Pricing reviews become a simple, yet powerful mechanism to monitor pricing, explore new opportunities and accelerate changes when market or business situations change.
By using the framework we outlined above, your business will be on its way to taking control of your pricing power to drive meaningful growth.
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If you or your team is interested in having a hosted session on your pricing strategy and monetization model, please contact us: contact@helloadvisr.com
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