Free Money from Price Execution
Pragmatic Pricing almost always focuses on value. How can you create more value? How can you determine how much your customers are willing to pay? How can you charge different customers different prices to capture more of the value you create? All value related. Today, let's talk about something different, easier, and extremely profitable: pricing execution. In its simplest form, execution asks "are you getting the prices you are setting?" The first thing that pops to mind may be that we are offering discounts, but execution is about so much more. Think of execution as not making mistakes. Have you ever gone to a store and the clerk accidentally charged you less for an item than what you should have paid? That is an execution problem. Have you ever not been charged for an item? That is an execution problem. Have you ever tried to use an expired coupon, been denied, only later to be accepted by another clerk? That is an execution problem. These are all B2C retail examples, but the same happens in your business. Do your customers receive the same price, no matter how many times they ask for a quote and no matter who they ask? Does the quoted price always make it onto the invoice accurately? Does the customer always pay the invoice amount? Are your rebate programs executed faithfully? Do you always charge for add-ons (or at least knowingly give them away)? Do you make your customers wait for quotes? Do you forget to invoice some customers? Companies rightfully spend considerable time and energy figuring out how to create value and how to charge the most for that value, but they lose significant revenue and profit simply by not executing pricing well. If you have not focused on your price execution, you are surely leaving money on the table. What's great is this is free money. Much of it is already owed to you. All you have to do is stop making mistakes. Here are a couple of ideas. For the next month, for every product or service you deliver, compare the payments you receive to your original quotes. Are they different? If so, why? Look at historical pricing for one product or service. Does every customer pay the same? (I hope not or you aren't segmenting on price.) Now, try to figure out which customers pay less? If you can directly tie this to Willingness to Pay (WTP) that's wonderful. However, you will more likely tie it to specific salespeople who sell more on price than value, or it may be caused by mistakes by busy employees. Price dispersion is wonderful if it's intentional and captures WTP. Otherwise, price dispersion is an indicator of poor pricing execution. Pricing execution is about putting systems and processes in place so your workers do the right thing every time. Most companies have significant profit leakage through poor execution. You can have a significant impact on your company's profits if you focus on it. Price execution really is free money. Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author Sign up for the Pricing Perspective, a free monthly summary of my blogs and other publications. Photo Credit: merfam
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