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Don’t Chase Pricing Ghosts | Strategic Pricing Solutions

Today is Halloween, but it is no time to be spooked by the challenge of increasing prices to fully capture the value of your products or services.  In nearly every company, opportunities exist to capture more value from select customers or products.  However, those opportunities are often not where you think they are, so do your due diligence.  Avoid chasing the ghosts of phantom opportunities.

In many companies, pricing attention is driven by the 80/20 rule.  That is, roughly 80% of the volume comes from 20% of the customers.  Companies look at those large customers that deliver a disproportionate amount of sales to determine if there are opportunities to raise prices.  It certainly seems easier to manage fewer customers and prices, and they can get more leverage out of small price increases.  However, the companies then conclude they can’t raise prices because “We are locked into contracts”, or “We don’t want to cause the customers to put everything out for bid.”  Unfortunately, that is not a good application of the 80/20 rule.  Very often there is more money to be made in managing the long tail of prices to smaller customers and low-volume products.

When you look deeply into your transaction history, you will frequently find small customers receiving low, big-customer prices.  Similarly, you will probably find low-volume products being priced as if they are fast movers.  Correcting these underpriced items can improve your profitability.  Although each transaction may be small, the improvements spread over all those products add up to real money.  After all, a 5% increase on 20% of the volume results in an overall 1% increase.

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Don’t Chase Pricing Ghosts.

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