Spoiler alert: Lowering prices on a high-value product in a competitive market will rarely drive long-term growth. Here’s what to do with your competitive pricing strategy instead.
We live in a time of abundant choice, and our customers expect options. Providing customers with a large variety of products and features is a compelling way to sell more. But, as companies grow and diversify, it can be difficult to capture the monetary value generated by the long tail of these products using traditional product management tools and data. An example of these traditional methods includes simple gross margin and product costing techniques derived from accounting systems. These conventional accounting data sets fail to account for the value of diversification and the actual cost of complexity.
The other day I received a call from the CEO of a technology company, and it was not to talk about his company. In this case, I was provided as a reference for a building contractor I had worked with several years ago. The caller’s name was Curt, and like many people building a home, Curt wanted to find a contractor who would do the job on time and not overcharge him. Sounds reasonable, right? Well, not always.
We have received many requests from companies wondering if it is a good idea to increase prices to offset declining sales during the pandemic. While the answer is generally no, it is important to recognize how buyers are changing their behavior and how the pandemic is causing disruption. So I thought it was wise to spend a few minutes reviewing the importance of understanding your distinct customer groups to bring clarity during economic chaos.
When Holden Advisors started almost 2 decades ago, our practice was rooted in B2B pricing. Reed Holden, our founder, co-authored the book that became the industry’s standard academic and practical pricing reference.