Why is pricing important 

Well-respected studies by global consultancies and academics show pricing to be the most powerful profit lever.  A 5% change in price will increase profits by an average of 22%, far more than a 5% change in volume or reduction in costs.  The impact on profit of any price adjustment is also immediate, whereas it can take months if not years to reduce your costs or change your sales strategy.

 

Yet it’s an element that can get overlooked.  For example we often see the following:

 

• Businesses not thinking strategically about their pricing or devoting little time and resource to a well thought through approach.  Instead, they may simply set prices at levels they feel the market will bear, or increase them by an arbitrary X% a year, when in fact there is so much more they could do.

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• Companies working out their cost of production, then just adding what they see as a fair profit margin on top.  This is what we call ‘cost-plus’ pricing, when in fact it may be more lucrative to look at pricing from a ‘value based’ perspective, ie: what value does this product/service bring people, and when might that value be greater, such that we could charge more for it?

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• Small business and start-ups making the mistake of setting their prices attractively low at the outset, in the hope of increasing them when volume sales are reached.  Yet this rarely works, as once customers have a price point in mind, it can be extremely difficult to change it, resulting in a long-term impact on returns

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These are the kinds of issues we address, deploying a variety of tactics to help you improve your profitability or grow your business, without risking market share or volumes.

 

As Professor Raymond Corey of Harvard Business School said: “Pricing is the moment of truth – all marketing comes to focus in the pricing decision.”  After all your hard work in developing a great product or service and communicating its value, pricing is where you collect your reward in hard cash. 

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So, it’s vital to get this right.  And with 20 years experience across many different sectors, we’re confident we have the tools to help – MD Tony Hodgson has worked in pricing consultancy for 15 years, prior to which he was head of global pricing for a major logistics company