Pricing Strategy

Do you find the need to constantly hand out discounts to move your product?

Do you know what would happen to your volume and margin if you changed price by 10%?

Do you know the difference between your list price and the price that you actually receive from customers after accounting for all the price ‘leakage’?

Pricing is the most powerful lever available to Product Managers. Yet it is a double-edge sword. While it can have the fastest and highest impact on short-term profitability (ranging from 7-11% by category), price discounts can also substantially erode brand equity.

While every business manager knows that we should price for value generated and not for covering our costs, it is cost-based pricing that is often the norm rather than the exception. In many cases pricing is delegated to the finance department without any guidance of market drivers, we often do not know the incremental value that is generated by our product or we have not approached pricing as part of a holistic value proposition development exercise.

Pricing identifies the part of the value generated for the customer that we can capture, given competitive considerations. EMM’s price strategy offering is based on the principles of customer-centric value proposition.

The value assessment model has three key components:

• Target Segment: It starts with the target customer (or consumer in B2C industries) segment. Discussion about value is useless unless we know how the customer defines it. And since each customer segment defines that value differently, we have to take pricing decisions specific to the target segment.
• Benefits: We have to not just articulate the benefits provided by our product but also identify the incremental value they generate for the target customer (in $s, hours).
• Cost: The cost is then what the customer pays for the incremental value generated.

Our pricing analysis is two-fold. In our initial assessment phase we do a price leakage analysis to identify the difference between the list price and the actual price paid by the customer and the various sources of price leakage. This short assignment gives us specific action items and a business case for improving the bottom-line.

In the pricing strategy phase, we understand the needs of the customer segments and how they derive value from our products/services. We then help to understand the incremental value added by our product/service relative to other alternatives. This analysis is equally useful in B2B and B2C categories. Another useful component of this analysis is an understanding of price and feature elasticity.