Pricing for Profit: make more money by effective pricing

Most companies could benefit from more effective pricing, according to Prof. Colin Coulson-Thomas. The latest stage of a continuing investigation reveals that almost all of 60 companies recently visited are missing opportunities to use pricing to improve profitability and build more rewarding relationships with customers.

Coulson-Thomas examines why it is that some companies are able to charge more than their competitors for essentially the same product and command premium prices for their offerings. He explains: "Pricing decisions impact directly upon sales revenues and profitability. Charge too much and orders are lost, while charging too little erodes margins and may give the impression that offerings are of low quality."

The University of Lincoln Professor feels pricing deserves greater attention "Obtaining and sustaining higher prices ought to be a top priority of entrepreneurs. Yet often they agonize over perfecting what is sold and then take quick pricing decisions based largely on guesswork."

So how should businesses set prices? Coulson-Thomas has some answers. He has persuaded 73 companies to reveal their pricing strategies, tactics and practices. The firms surveyed provided data on 127 factors that could affect pricing decisions. The findings set out in his report ‘Pricing for Profit’ suggest more effective pricing could boost the profitability of many companies.

Comparing the companies that are most successful at using pricing to achieve business objectives such as growing market share or improving profitability (the leaders) with the least successful (the laggards) revealed stark differences between the two groups. For example, leaders make more use of all nine tools and techniques examined.

Coulson-Thomas finds: "Leaders understand the strategic importance of pricing and are more attuned to factors such as perceived value that affect price sensitivity. They involve a wider range of departments in pricing decisions and members of the sales team play a more significant role. The most successful companies also rely upon evidence rather than hunch."

The Professor warns "Marketing and sales should contribute to pricing as they ought to be close to customers. But left to themselves they may be tempted to ‘buy’ orders. Offering discounts may be regarded as a softer option than differentiating, tailoring and delivering extra value to justify a higher price. However, excessive discounting can reduce profitability."

Coulson-Thomas finds that: "Leaders attempt to sell on value as opposed to price. They are more likely to segment a market-place and take a long-term view, for example using ‘penetration pricing’ to enter a new market. When laggards look ahead it is often for defensive reasons, for example cutting price to hold onto market share."

The cost drivers of leaders and laggards are very different. According to Coulson-Thomas, "Leaders are five times more likely to increase volume to achieve economies of scale. They are also more realistic when allocating costs and more likely to understand the direct and indirect costs attributable to a particular product or service."

Overall, according to Coulson-Thomas: "Leaders adopt a very different approach to building their businesses. They focus on each market segment, differentiate their offerings, and look for ways of increasing quality and delivering improved customer service. Investing in these areas allows them to build sales volume, reduce unit costs and become more competitive."

The Professor points out that: "Leaders keep their pricing structures simple and transparent. Increasing an offering’s economic value and the extent to which it is unique or special enables them to price for value. Differentiated, tailored and exclusive offerings attract a premium. Leaders strive to add value to their core offering, develop a reputation for service and use pricing to build closer relationships with key customers."

Coulson-Thomas concludes: "Overall, leaders put greater effort into pricing. They use a wider range of sources of price information. They keep their finger on the pulse of customer, user and industry opinion, and review their approaches, strategies and tactics as situations and circumstances change."

‘Pricing for Profit... the Critical Success Factors’ by Colin Coulson-Thomas can be obtained from Policy Publications. To order the report: email: colinct@tiscali.co.uk or visit http://www.policypublications.com or www.ntwkfirm.com/bookshop/

Prof. Colin Coulson-Thomas, an active consultant and an experienced chairman of award winning companies is author of ‘Pricing for Profit’, a report on the critical success factors for effective pricing. He has reviewed the processes and practices for winning business of over 100 companies, helped over 100 boards to improve board and/or corporate performance, and spoken at over 200 national, international and corporate conferences in approaching 30 countries. He can be contacted by email: colinct@tiscali.co.uk or via http://www.adaptation.ltd.uk or http://www.coulson-thomas.com