I recently had a conversation with an executive of a B2B company who said they want to price more strategically. The company currently sets prices using a cost plus methodology, and they have heard repeatedly there is a better way. When we discussed some of the implications of pricing strategically, including pricing to value rather than cost, and setting different prices for different segments and customers, the executive worried aloud that he might make matters worse rather than better. I explained that when developing more strategic prices, he would identify the customers, products, and situations in which the probability of successfully selling a higher price would be greater. However, I also reminded the executive that in order to be successful, he would need to have the courage to actually charge the higher prices.
Unfortunately we often run into companies who determine where they could price more strategically, but then lack the courage of their convictions. These companies do the work to identify underpriced customers and products, but then refrain from properly increasing those prices. “I can’t raise that price 10% in an environment where inflation is less than 2%.” “I can’t charge small customers more.” Well why not? If you have really done the work to determine that the value to a customer or segment is much higher than you have been charging, or you have identified the customers who are less price-sensitive and more service-sensitive, why can’t you charge them appropriately? If your work is accurate, the customers will not leave you for making reasonable corrections.
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