Your Local Grocery Store has it relatively easy. Once they decide where to price an item, they just program the scanner. All customers at the grocery store get the same price and the cashier doesn’t get to vote on the price charged.
Complexity
Your industry’s pricing challenge is more complex. Your customers vary greatly. An item may be “milk” (a core competitive item) for one customer but a “doughnut” (incidental item) to others. The key is to measure the price sensitivity of each item for each customer buying that item. It’s not enough to base your price on how price sensitive an item is in your business at large.
Fear
Unlike the grocery store cashier, your sales people can and do impact your pricing. Unfortunately, it’s hard for sales people to identify where they can safely make more. Given how competitive the market is and with a lack of pricing tools, fear takes over. Financial incentives aren’t enough to overcome this fear. Given a choice between asking for a higher price or the fear of losing a sale altogether, they will choose safety over a chance to earn a little more.
You can increase your company’s margin if you recognize the impact of fear and take steps to build a targeted approach to margin improvement.
At Profit2, we have developed tools that enable distributors and manufacturers to identify the optimum price to charge each customer for each item they buy. We’ve also developed a methodology to involve sales people at each step of the process to make sure margin increases are safe and to overcome the natural fear of raising prices.
Have you taken a comprehensive look at your pricing and focused on differentiation? If not, you may be missing the single biggest opportunity to increase the earning of your company.
