8 Pricing Essentials to Help Mitigate Cost and Risk
A common business struggle is mitigating costs and controlling risks to reach margin targets.
Cost-plus pricing methods (where price execution is determined from static rules rather than real-time changes) are unable to respond to fluctuating market dynamics. Therefore, prices become outdated and potentially harmful to your business – often overnight.
Another problem is inconsistent pricing deviations, meaning prices do not reflect a customer’s willingness to pay.
In the absence of standardization in pricing and quoting processes, contract pricing and customer agreements are inconsistent, and complex contracts constantly achieve low margin results.
A lack of complete visibility into true customer profitability leads to inconsistent margin performance. If the pricing isn't accurate, how can quoting be reliable?
The implementation of smart business tools, by Canidium and our partner, Pricefx, enables businesses to maximize profit and reduce risks simultaneously.
Pricing Risk Considerations
Value Management
Do you own clear documentation of what drives customer value? And is there a customer communication plan for each product or service?
Pricing Strategy
Do you have a published, up-to-date pricing strategy that aligns brand positioning and customer behaviors?
Trade Agreements
Are your company’s contract structures formulated to protect your cash flows with the correct rebate structures?
Management Agreement
Are the executives within your company in agreement about the business strategy and processes, and does this trickle down into each department?
Functional Skillset
Is your staff properly trained to understand pricing, the platforms and daily operations?
Sales Team Literacy
Are the sales team comfortable with value-based pricing to generate more profitable margins?
Pricing Essentials for Your Business
1. Visibility
You should have a clear and holistic view of all your data. That means internal (including current and projected sales history as well as costs) and external (consisting of customer demand and channel partner data).
2. Strategy and Leadership
Your leadership team needs alignment with company goals. They should understand how and why they will influence tactical decisions and know the potential impact of all exceptions.
3. Processes
By automating and streamlining workflows, you can execute mass price updates using less manpower while improving accuracy, consistency and speed.
4. Tools and Systems
Tools are critical in the pricing decision-making process because they allow more specialized systems and analyses to support optimal pricing decisions.
5. Structure
To avoid macroscopically siloed and locally optimized decisions, you need to limit decision-making to only those best able to do it. Having an interconnected data system allows teams to make better decisions based on real-time, accurate data. To ensure everyone is looking at the same info, it is essential to leverage a cloud-based platform that easily integrates with your existing technology.
6. Skills
One of the necessary top skills is pricing acumen. But when manual tasks that could be automated are taking up your pricing team’s precious time, you’re wasting their talent. With the right tools, processes and workflows, your team’s skills can be freed up to work on profit growth.
7. Value and Price Communication
Ensuring prices are not only based on value but that your customers consider them fair and consistent requires specific practices.
8. Reduced Risk
Companies should search for data insights that reveal opportunities and mitigate costs to reduce risk. Automating your quoting and negotiation workflows will ensure order-taking is both streamlined and accelerated. Mass price update executions should, therefore, take less manpower and, at the same time, result in greater speed and accuracy. And the complexity and overhead around the ship & claims process should be reduced.
At the heart of these essentials is price analysis.
Without putting too fine a point on it, most data is in disarray, stored across multiple siloes and choked with irrelevant or incorrect entries or gaps. Data like this won’t bring tangible results.
With visibility comes insights – and with insights come smart pricing decisions.
Canidium and PriceFX will help guide you through this journey.
