By Jim Holland, Sr. Product Marketing Manager
Whether it’s trade wars, hints of an economic downturn or a recession that shifts global business, companies need to stay ahead of the next big thing impacting pricing, revenue and sales. With the pressures of making correct pricing decisions in stable markets, having intelligent pricing strategy in place when there are turns in the market are critical.
In the recent article Why You Shouldn’t Slash Prices in the Next Recession published in the Harvard Business Review and authored by Shihwan Chung, Ron Kermisch and Mark Burton, from Bain & Company’s Customer Strategy & Marketing practice, “During the last recession, producer prices fell by nearly 8% and took nearly two years to recover. Why? Executives often assume that slashing prices and profit margins is the only way to keep their customers and market share. Salespeople, desperate to make their quota, fail to hold the line on discounting, and companies want to maximize their use of assets even when demand softens.”
The authors continue, “That perspective is shortsighted. Across-the-board price cuts can permanently erode a company’s profitability and strategic position.”
What should leaders in pricing, sales and finance do to better prepare for potential unknowns ahead? Here are four pricing strategies you and your company should consider:
- Know your place in the market and exactly what drives your profits – “In order to navigate the trade-offs between price and volume, well-prepared companies factor in their standing as a market leader or follower.”
- Price through a segmented, value-based approach – “Different customer segments have different price sensitivity and value different elements of an offering.”
- Patch the price leakage – “Price leakage is insidious, accumulating over time. Companies should check to ensure that they’re not giving away more than they are contractually obligated to provide.”
- Develop dynamic pricing where it makes sense – “When markets shift suddenly, the commercial organization should have the flexibility to adjust prices quickly. That requires laying the groundwork by having the right data, analytics, and monitoring program.”
At Model N we have a strong point of view regarding pricing strategy. We fully agree with Chung, Kermisch and Burton and their recommendations that companies need to:
Actively know your markets
- Do you have a single source of pricing and deal truth in place?
- Do you know what’s really driving your growth and profitability?
- Do you know what’s really impacting your deal success and pricing.
Price with value in mind
- Do you have your markets and channels segmented to maximize revenue?
- Do you know what prices are guiding the best value with your sales and channels?
Narrow price leakage and gaps
- Do you have clear insights into the special pricing, price protection, special discounts and their impact on revenue leakage?
- Are channel incentives and rebates integrated within your pricing strategy?
- Do you really understand the impact of ship and debit or special pricing on price gaps?
Introduce intelligent pricing
- Are you using your price waterfall to provide insights into better pricing?
- Do you have a single continuum to manage your gross-to-net?
- Are your analytics tools siloed and don’t have a comprehensive view into your pricing?
Model N has spent almost 20 years engaging with and building pricing strategies for high-tech and semiconductor companies. In the past 18-24 months we’ve seen some of the largest high-tech and semiconductor companies embark on a new focused way of managing all functions impacting net revenue and net price as a single continuum. If you don’t have a clear view into the questions above or have concerns about how you will weather the next economic impact, Model N would like to connect to discuss building better bellwether pricing strategies. To hear more about how you can build a single, price continuum, listen to this recent webinar. To connect with a Model N expert, click here. To read the complete Bain and Company article on HBR, go here.