As inflation rates fall and the pricing environment continues to shift, many businesses are asking how they can adjust their pricing strategy to ensure stronger, more sustainable profit growth. These organizations are asking questions such as:

  • Pricing Structure:
    • Am I using the best pricing structure for my business goals?
    • How can I think about my pricing structure differently to support sustainable gains?
  • Price Changes:
    • How can I ensure that prices remain relevant with the market?
    • How can I raise prices without losing customers or volume?
    • How can I use pricing as a lever to grow volume?
    • How do I ensure my prices are flexible and dynamic to keep up with market changes?
    • How can I maximize price realization in this environment?
  • Customer Relationships:
    • How do I price smarter to build, retain, and grow customer relationships?
  • Leveraging Data and AI:
    • How important is AI to my business?
    • Where can I better leverage data and AI to gain a competitive advantage?

With these themes in mind, we outlined five critical components of a successful pricing strategy organizations should prioritize in today’s environment.

1. Consulting Approaches to Reassessing Your Pricing Structure for Sustainable Growth

Many of our clients seek our partnership because their pricing has gone stale or is not dynamic enough to address market volatility and dynamics. Many organizations are facing challenges such as outdated list prices, unused price records, prices that are not market-relevant and fail to drive the right volume growth, or customer pushback on price increases due to a lack of justification. It’s imperative for companies to adjust their pricing strategies based on market environments, business conditions, and growth goals to ensure pricing remains relevant and generates the desired outcomes.

There are a variety of pricing methods businesses can utilize as the basis of their pricing strategy. Many businesses use a cost-plus or margin-plus approach to set prices. These are popular for good reasons—they are simple to execute and low risk. However, most businesses that utilize these pricing methods don’t fully capture the value of their products and services. This type of pricing structure passes favorable cost savings back to the customer which often is not warranted by the customer and related to a different set of goals driven by a procurement team. Organizations should challenge themselves to shift to pricing structures that are not tied to cost, but more based on overall value in the marketplace and to the customer. With this approach, businesses can drive more sustainable growth through better market positioning and customer relationships that are based on value, not just a cost line item.

On the other end of the spectrum, value-based pricing offers companies a customer-centric approach that is rooted in the value you deliver. It enables iterative learning for stronger customer relationships, competitive positioning, and product improvement. Businesses that utilize value-based pricing require strong data capabilities to analyze large datasets across customer, market, competitor, and transactional data to extract key learnings that fuel and optimize your pricing strategy over time.

List and discount is another common pricing structure used by many successful manufacturers and distributors. It establishes a set list price, often at the product level, which should be positioned to reflect the product’s value. The second part of the structure, the discount, is more focused on customer value and includes factors such as inventory levels, customer status (new vs. recurring), customer wallet-share, and existing customer revenue contribution. This pricing method is typically straightforward and a positive step toward more value-based pricing. However, it requires a thoughtful approach to both price and discount setting to move toward a value-based pricing structure.

Other impactful pricing structures include:

  • Dynamic Pricing: Ability to adjust price recommendations, such as quotes or online pricing, based on changing market or business variables
  • Packaging & Bundled Pricing: Grouping products and services to incentivize and promote certain items while supporting customer preferences
  • SaaS & Subscription Pricing: Includes a variety of pricing models that support recurring revenue, based on customer and product/service/feature factors

Shifting your pricing strategy to a more advanced approach, or set of approaches, enables companies to price smarter, fostering better customer relationships and profit growth. However, price setting is only the first step. Businesses can amplify their impact through cohesive, integrated pricing strategies that go beyond price setting to include price implementation, commercial enablement, analytics for data-driven pricing decisions, measurement of price realization, and easy-to-use pricing and quoting systems for the sales team.

2. Execute on Your Pricing Strategy: The Importance of Commercial Excellence

Most businesses can no longer rely on the same historical annual price increases as the sole component of their pricing strategy. These companies need robust communication plans, negotiation strategies, and supplementary pricing programs to ensure price realization and achieve desired growth in margin, revenue, or volume.

Best-in-class pricing strategies include infrastructure that supports price implementation, ensuring that price is not just set, but growth outcomes are realized as expected. This includes:

  • Common goals and internal alignment from executives to sales reps
  • Educating the sales team on why price changes are happening and the value your company delivers
  • Empowering sales team ownership through informed decision making, within aligned expectations
  • Supporting your sales team through education such as role playing or negotiation training
  • External communication toolkits such as sales scripts, escalation paths, breakeven calculators, or customer FAQs
  • Sales accountability through performance metrics and review cadences
  • Sales compensation structures that motivate and reward desired behavior
  • Centralized easy-to-use systems and pricing technologies for the sales team, including quoting applications and decision-support analytics
  • Clear pricing guidelines, guardrails, and roles and responsibilities across your team, including price floors and approval processes
  • Supplementary cost-to-serve mechanisms the sales team can leverage to safeguard profit

Price changes are an integral part of every business’s pricing strategy. However, it’s critical to ensure your pricing infrastructure supports the commercial team through implementation.

3. Augment Your Growth Through Market Basket Analysis & Sales Enablement

Market basket analysis is a valuable enabler of strategic growth initiatives across many industries. As more businesses are concerned with volume growth and sustainable pricing practices, market basket analysis can inform us of the best ways to drive sales while improving customer retention and increasing ROI.

By mining historical patterns, market basket analysis makes highly probable data-driven conclusions and suggestions about customer behaviors that can inform aspects of a pricing strategy. Businesses with advanced pricing strategies employ some form of market basket analysis to drive growth through programs such as:

  • Wallet Share: Drive revenue by increasing customer penetration on products already in a basket of goods
  • Cross-Selling: Increase customer lifetime value by selling additional products to current customers
  • Bundling: Create product offerings that best reflect the value you bring to your customer base
  • Loyalty Programs: Reward and grow your recurring customer base through targeted customer interactions and incentives
  • Promotional Campaigns: Boost engagement and expand your customer base by informing ideal target campaigns for opportunistic products
  • SKU Rationalization: Actively manage product portfolio to maximize both top- and bottom-line performance
  • Inventory Management: Move excess and obsolete inventory to customers who are most likely to need it, and price in-demand inventory to reflect the value you bring to the market

These tactics can provide additional growth opportunities within your pricing strategy.

4. Leveraging AI in Consulting to Enhance Pricing Strategies

As the buzz around AI grows, many companies are questioning how much it applies to their business and what AI/ML practices are most practical for their growth plans.

In pricing, AI/ML can be utilized to process large amounts of data to perform a specific task. However, data science and AI practices are not suitable for all circumstances, often due to insufficient data quality that hinders reliable conclusions. Additionally, it’s critical for businesses using AI/ML techniques to maintain strong discipline around testable, verifiable, maintainable, and sustainable solutions, which includes human oversight and intervention.

That being said, there are a handful of AI/ML techniques that many businesses can benefit from, including:

  • Identifying patterns that reveal what customers care about most
  • Segmenting products and customer behavior to enable cross- and up-selling
  • Recognizing likelihood of churn/attrition and adjusting pricing strategies to retain customers, such as offering discounts or special promotions
  • Testing price points across transactional history and different pricing structures to determine optimal pricing structures for your organization
  • Monitoring competitor pricing strategies in real-time and adjusting your pricing to stay competitive
  • Using algorithms to adjust prices in real-time based on demand, supply, and competitive factors (e.g., e-commerce platforms that use dynamic pricing to optimize prices based on current market conditions)
  • Analyzing trends and patterns to forecast demand fluctuations and adjust prices proactively
  • Estimating costs for quote efficiency
  • Assessing ROI for promotions and other spend

While AI can play a strong role in a business’s pricing strategy, it’s important for companies to deploy practical techniques that answer critical questions and drive desired outcomes, not just follow a trend. However, businesses that can successfully leverage applicable AI/ML methodologies may be better positioned to sustainably achieve growth goals

5. Invest in Infrastructure: Quality Data, Analytics & Your Tech Stack

Data enables everything from price modeling to price measurement. Quality data is a key differentiator for organizations aiming to achieve long-term pricing excellence, providing the foundation for most profitability decisions.

Businesses that prioritize data agility are best positioned to absorb, analyze, and quickly act on findings to optimize their pricing strategies and meet growth goals. Best-in-class pricing organizations leverage quality data for outcomes such as:

  • Business intelligence (BI) and data visualization technology that provides clear, granular analysis on price performance and tracks other KPIs
  • Data-driven price recommendations powered by pricing engines and utilized by sales teams to drive growth
  • Pricing technologies that are heavily utilized by sales teams because they make their jobs easier, such as quoting applications and software integrations
  • Price guidelines and controls embedded into systems, such as approval routes, price/quote/discount recommendations, and documented reason codes
  • Data-backed decision-support for commercial teams
  • Results that provide a feedback loop for continuous improvement
  • Reliable, data-supported conviction for mergers, acquisitions, and exits

As businesses add more tools to their tech stack to help pricing and commercial teams make smarter decisions, one of the biggest hurdles is ensuring these technologies are supported by quality data and integrated into seamless, comprehensive workflows that reduce friction and boost efficiency.

Pricing Excellence with INSIGHT2PROFIT

Pricing excellence is more than a one-time lift from a price adjustment. Pricing strategies that produce sustainable growth require strong pricing capabilities and infrastructure. If you’re unsure where to start, INSIGHT can help assess your current pricing and identify key areas of opportunity to guide you on your journey toward pricing excellence. Contact us to learn more!