Pricing Done Right
Setting prices is a strategic decision that needs C-level attention. Your profits depend on it.
Thu, January 26, 2012
CIO — The problem with pricing, say consultants at Deloitte, is you. Senior executives don't recognize the importance of consistent and detailed pricing strategy, Deloitte says, and leave it to employees further down the chain to manage. Companies that do this pay the price in lost profits. (See more: "New Mission for CIOs: the Art and Science of Pricing")
Waste Management's CEO and CIO work together directly on pricing strategy, with the CEO recently approving a large investment in a new decision sciences group that will work, in part, on pricing analytics. Aspen Skiing, which runs ski resorts in Colorado, uses business intelligence tools to evaluate pricing scenarios that the sales group perhaps hadn't considered, says Paul Major, managing director of IT. For IT leaders and other top executives who want to tackle the pricing issue, Deloitte suggests revising old thinking by doing the following:
- Analyze what kind of transactions are most profitable to your company. Your biggest customer might be costing you money.
- Develop pricing strategies for different scenarios, taking into account company circumstances but also larger economic and social events.
- Form a pricing team of employees who like new challenges.
- Price for profit margin, not sales volume.
- Emphasize how important a consistent strategy is. Customers can accept fluctuating prices if they see the logic behind them.
Aspen's Major advises companies to stop relying solely on anecdotes from salespeople about which prices work or don't. "The worst enemy of pricing is the perception that you have good instincts."
Follow Senior Editor Kim S. Nash on Twitter: @knash99.