The 2020 Mid-Year Economic Update_long

Common Flaws in Pricing Structure

Its important to find, message and price your hidden value.
BobSherlock_sm

Editor’s note: Hear more on this topic from Sherlock in his session, “Hidden Value: Pricing & Margin Improvement Levers,” at MDM’s upcoming conference, MDM Analytics Summit 2018,September 18-20 in Denver.

Especially in highly competitive distribution markets, there are revenue and margin dollars that could be — and should be — coming in your doors. More favorable prices can help you to grow both sales and margins. 

The least risky pricing moves are those where the customer would pay more, if not given the opportunity to pay less. You’re likely to find those price moves where your company is providing more value to customers than one or both parties realize. I call that hidden value. 

Especially in today’s competitive environment, it's important to find your hidden value, communicate it and price to get paid for it. But how?

Product-Based Prices: A Good Place to Find Hidden Value\"Sherlock

Where might we look for hidden value?

  • Cost-plus pricing, often modified for prevailing levels and competitor practices, systemically overprices certain customers while underpricing others. It’s associated with hidden value — and it’s sometimes causal.
  • Distributors’ pricing is typically product-based, yet distributors’ cost structures and value creation for customers are mostly a function of services. So product-based pricing, in any form, is a value-hider when used in a service business.

In an Amazon-influenced world, it may be less and less viable to have so much of the value you provide be bundled into product-based prices. Product-based prices can easily result in:

  • Being overpriced to accounts and prospects unwilling to pay for services they don’t think they need.
  • Under-serving and underpricing other customers who are more results-sensitive and are willing to pay more when they see the value (Either way, a misaligned offering will hold down your sales and margins).
  • Sending customers the wrong signal about the cost of your resources, encouraging overuse of scarce resources that could be used more profitably.
  • Incurring costs that won’t be recovered.

In my interactive session at MDM’s Analytics Summit 2018, I’ll map out how to start moving away from bundling too much value into your product-based prices. And I’ll share other recommendations for finding, messaging and pricing your hidden value.

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