Pricing Strategy: Avoiding Common Mistakes
Proper pricing is one of the most leveraged attributes in any commercial strategy. Everything else being equal to a higher price will drive a higher contribution than any other factor. Yet, pricing mistakes are all too common:
Reduce the price instead of increasing value/utility
- Innovation and competitive forces place constant pressure on price points. It is easy to succumb to these pressures and reduce prices rather than increasing the value of the product and to maintain the revenue line. Once a price reduction spiral has started it is hard to stop – never mind realizing price increases.
Use price to compensate weaknesses in the product, sales or strategy
- Along the same lines, pricing should not “cover up” other deficiencies in the go-to-market model. Pricing that is perceived as a quick fix, is very difficult to recover from while permanently damaging revenue. Fix the underlying issue but don’t erode revenue by compromising price points.
Poor price realization
- A lot of time is usually spent on the front end – coming up with the right strategy, pricing model and commercial terms. However, the actual street price being realized significantly lower than prescribed and more importantly is not at all correlated with any discount structure or strategy. Establishing the right operational controls and governance is crucial and should not be overlooked.
What do you think? What pricing errors have you made yourself or observed elsewhere? Comment below or contact me directly if you’d like to discuss your commercial strategy. https://www.advantary.co/team/carsten-holm/