Pricing can be a powerful way to unlock value and drive 'margin expansion'.
Pricing is an untapped value lever that is often overlooked or is usually lower in priority. Optimizing pricing can have a multiplier effect on the bottom line. The impact compounds over time, and often there’s limited one-time costs to implement. Unlike cost takeout, pricing is not disruptive to the organization. A robust pricing strategy can be instrumental in driving ‘margin expansion.’
We often come across the following "myths" that may hamper an organization's ability to adopt a robust pricing strategy.
- Myth 1: We are taking advantage of our customers. Pricing, if done right, can be win-win for both the seller and the buyer.
- Myth 2: Pricing strategy means raising prices. Not always. Sometimes, it may result in a lower price. The key is to charge appropriately to capture customer's willingness-to-pay.
- Myth 3: A "cost-plus" pricing approach makes sense. The approach often leaves money on the table by not considering customer demand and willingness-to-pay.
- Myth 4: Benchmarking to competition. Assumes competition uses the "right" price, and ignores reasons why customers may prefer our offerings.
- Myth 5: Lower price means we can sell more. Yes, but we may not maximize profits and revenue by doing so. We may leave money on the table and not necessarily capture enough volume to offset the price reduction.