Search Results

Author: Jose Mendoza  Image this: you walk into your favorite store, excited to pick up your go-to product, only to find the price has changed—again. Is it a sale? A mistake? Or is this just the new reality of shopping? Welcome to the era of dynamic pricing, where prices are constantly adjusted based on real-time data and algorithms. In today’s fast-paced retail world, sticking with static pricing models can leave your business behind. Embracing dynamic pricing not only keeps you competitive but also helps you meet ever-changing customer expectations. Let’s dive into the different dynamic pricing frameworks and discover practical insights to help you find the best strategy for your business. Why Dynamic Pricing Matters More Than Ever Retail has evolved beyond simply offering the best products—it’s now about offering them at the right price, at the right time. Dynamic pricing allows retailers to adjust prices in response to market demands, inventory levels, and individual customer behavior, keeping them a step ahead in a highly competitive landscape.   The Shift from Static to Dynamic Traditional pricing models often fall short in capturing subtle market shifts. Dynamic pricing, however, provides the flexibility and responsiveness retailers need to thrive. Here’s how it benefits your business: Stay Competitive:  Quickly respond to market changes and competitor moves. Optimize Revenue:  Adjust prices to match what customers are willing to pay. Enhance Customer Experience:  Offer personalized pricing that resonates with shoppers.   Exploring Key Dynamic Pricing Frameworks: Finding Your Perfect Match Understanding different dynamic pricing models can help you choose one that fits your business goals. Rule-Based Pricing This model adjusts prices based on set rules, like time of day, stock levels, or competitor pricing—a bit like cooking with a recipe. Pros:  Easy to implement and understand; offers control over pricing. Cons:  Can be too rigid in fast-changing markets; may become complex with numerous products. Recommendation:  Great for beginners or smaller businesses. Start simple and add more variables as you gain confidence.   2. Demand-Based Pricing Prices fluctuate based on real-time demand—think surge pricing on ride-share apps during rush hour. Pros:  Increases revenue during high demand; helps clear inventory during slow periods. Cons:  Frequent changes can frustrate customers; relies on accurate demand forecasting.   3. Competitive Pricing Adjust prices based on competitors—a classic “keeping up with the Joneses” approach. Pros:  Keeps your offerings competitively priced; attracts bargain hunters. Cons:  Risk of price wars; may overshadow your unique value.   4. Price Optimization Algorithms This model uses data to analyze customer behavior, market trends, and stock levels to find the ideal price. Pros:  Data-driven decisions boost accuracy; balances revenue and profit goals. Cons:  Requires technical know-how; higher setup costs.   5. AI and Machine Learning-Based Pricing Using artificial intelligence to predict market trends and customer preferences allows highly personalized pricing strategies. Pros:  Learns and improves over time; offers tailored pricing experiences. Cons:  Can be opaque; raises questions about pricing fairness.   Overcoming Challenges in Dynamic Pricing Dynamic pricing comes with its challenges, but with the right approach, you can navigate these hurdles effectively: Data Quality and Availability Challenge:  Poor data quality can lead to bad pricing decisions. Solution:  Invest in solid data management systems and regularly audit data for accuracy.   Customer Trust and Perception Challenge:  Frequent price changes can make customers wary. Solution:  Be transparent about price adjustments and consider offering price guarantees or loyalty programs.   Ethical Considerations Challenge:  Pricing algorithms might unintentionally result in unfair pricing. Solution:  Set clear ethical guidelines and regularly review your algorithms for biases.   Choosing the Right Framework for Your Business There’s no one-size-fits-all approach to dynamic pricing. Consider these factors when selecting your model: Business Size and Resources:  Smaller businesses might find rule-based pricing more manageable, while larger operations can benefit from AI-driven models. Market Dynamics:  Keep a close eye on competitors in highly competitive markets. Customer Base:  Understand how price-sensitive your customers are and adjust your strategy accordingly. Key Takeaways: Stay Flexible:  Adapt your pricing strategy as your business and market evolve. Data Matters:  High-quality data is essential for effective pricing decisions. Collaborate:  Working across departments can enhance your pricing strategy Want to Learn More? Interested in transforming your retail business with dynamic pricing? Join us at the Professional Pricing Society (PPS) Conference in Las Vegas from October 22 to 25, 2024. Explore these frameworks in-depth, hear success stories, and learn about effective implementation strategies.

Author: Stacey Adams To achieve long-term profit growth and provide value to customers, organizations must adopt proactive pricing and quoting programs that consider market dynamics, competition, and customer behavior. However, one fundamental factor that significantly impacts profitability is the cost of the products and services being offered. For manufacturing organizations, calculating costs accurately can be challenging due to various factors that affect the final result. From fluctuations in material prices to disruptions in the supply chain and inaccurate cost allocation methods, neglecting costs during the quoting and pricing process can lead to unprofitable deals and products. So, What’s the Relationship Between Profit and Price? Let's start with the basic profit equation: Profit = Revenue - Cost. Regardless of the industry, customer base, or sales channel, every organization generates revenue by selling products or services and incurs costs to make those products available. In the pricing equation, Price = Cost of One Unit + Expected Return or Markup, it is clear that the cost plays a crucial role. Without confidence in your cost calculations, you may find yourself either losing potential deals or leaving money on the table. But what does it mean to truly know your costs? Calculating costs involves considering more than just direct material and labor expenses. Post-production, delivery, service, quality control, logistics, and other overhead costs all contribute to the final cost of a product. Additionally, costs are not static numbers; they can be influenced by market dynamics, competition, and customer behavior. Without a comprehensive understanding of the cost of each product you sell, you risk pricing yourself out of the market or missing out on potential profits. Accurate cost data is essential for pricing professionals as it helps identify cost-saving opportunities, adjust pricing, and optimize production processes to maximize profitability. While you may not have full control over the cost of each unit, successful pricing and quoting professionals recognize the critical importance of cost in their decision-making. Categorizing Costs and Identifying Key Drivers Costs occur at every stage of your company's value chain. To effectively manage costs, organizations need to identify the true drivers behind them. For manufacturers, direct costs associated with production are significant, but there are many other cost considerations to take into account. The Cost and Profitability Framework, developed by 3C Software, defines three areas of cost to help organizations understand how costs are generated and help teams understand their impact.   Cost to Source:  This includes calculating the costs of materials and resources required to manufacture products. It involves determining the inbound landed costs of materials, subcontractor or vendor manufacturing costs, target costs, and should-cost estimates for new products. Cost to Make:  This encompasses the costs associated with manufacturing products, such as manufacturing product costs, bill of materials and routing costs, allocations, rate building, and inventory costs. Cost to Deliver:  This includes the costs associated with moving products and servicing customers. It encompasses post-manufacturing costs, supply chain expenses, outbound transportation and reverse logistics costs, and all the selling and support costs related to your products. These different cost categories combined offer a comprehensive view of costs for the organization and the foundation for all types of analysis. One area quoting and pricing teams find interesting is cost-based quoting - the ability to calculate detailed cost estimates for customer quotes. Cost-Based Quoting: Reducing the Risk of Inaccurate Quotes For quoting teams in manufacturing, calculating costs is crucial. In scenarios where customers place custom orders, the cost-based quoting process becomes essential because each order is unique, and there are no existing bills-of-materials (BOMs), routings, or established processes. The first stage of cost-based quoting involves inventing the product. This entails understanding the customer's specifications, creating BOMs and routings, and estimating direct costs. While this step may appear straightforward, it is actually quite intricate. Customer specifications in spreadsheets, drawings, specifications, and other documents are reviewed, and relevant data is captured and shared with the product or cost engineering teams. The initial product specifications are then confirmed, and the process moves to the next stage. The second stage focuses on calculating costs and determining prices. In most cases, three steps are involved in arriving at the final selling price communicated to the customer: ·       Computation of material, production labor, and overhead costs. ·       Summing and amortizing specific non-recurring costs, such as equipment, tooling, engineering, design, or other required expenses. ·       Assigning freight and distribution costs, selling, general, and administrative expenses, royalties, required profit margins, and others to the product. The final stage involves communicating pricing decisions to the customer and monitoring the ongoing performance of the quote. One important factor to note is that cost-based quoting is not a linear process. Throughout the three stages, there is constant communication and collaboration among stakeholders, including customers, commercial teams, quoting teams, product and cost engineering teams, and procurement. During negotiations, and even when the deal is complete, market changes can impact the costs of the quoted product. For example, commodity or raw material prices may change between accepting an order and producing it. With a cost-based quoting approach, you can evaluate the impact of those changes to ensure you meet your profit targets. Similar situations can arise when creating new products or modifying existing product lines to maintain or gain market share. A deep understanding of the costs associated with ongoing production is critical for determining pricing. How Cost Accounting Can Help Cost accounting analysis has the potential to uncover areas where a company can reduce internal costs, thereby minimizing the necessity for substantial price increases for clients. This approach facilitates the discovery of common ground and the development of win-win solutions that benefit both parties. Improved cost data can provide valuable insights for negotiations and broaden your pricing capabilities beyond mere price increases. For instance, your team could suggest alternative pricing models like volume discounts, usage-based tiered pricing, or longer-term contracts with fixed prices to address client concerns. In any situation, having access to precise cost information will only enhance your ability to maximize profits. Collaboration & Transparency: The Profit Multipliers The objective of strategic pricing is to maximize the amount that customers are willing to pay. While cost may become less significant from this perspective, its critical role in generating substantial profits should not be disregarded. Collaboration among teams cultivates initiatives to save costs, unifies everyone towards common objectives, and enhances transparency in pricing decision-making. A comprehensive understanding of costs allows for shaping customers' perceptions of value, managing discounts to safeguard profitability, and effectively communicating price increases in response to market conditions. Conclusion Cost accounting provides invaluable insights to pricing professionals, supporting informed decision-making, and optimizing pricing strategies. Often overlooked, cost accounting provides accurate data to benchmark and analyze competitors, facilitate strategic planning and forecasting, justify pricing decisions to stakeholders, and enable data-driven decision-making. In summary, effective pricing programs require a solid understanding of costs. By categorizing costs, identifying key drivers, and leveraging cost accounting insights, organizations can achieve profitable quoting and pricing strategies, maximize profitability, and succeed in the long run.

Author: Steven Goldstein, CPP, Director Pricing / Finance, PLZ Corporation As pricing professionals, we are tasked with driving pricing excellence.  Often this means that our organizations want us to increase pricing to ultimately drive more profits to the bottom line.  In the simplest form, this means a price increase.  This approach may work in the short term, but this does nothing to drive pricing excellence in your organization.   Look for “low hanging fruit”.  During an inflationary period, market conditions help craft a story that not only can your sales team grasp, but your customers are prepared for too.   As part of raising prices, you need to back up the price increase with publicly available data that your teams can share with their customers.  For example, data from the US Bureau of Labor Statistics is a free source of data that anyone can access. Analyze your data and look for losers.  Years ago, I was employed by a pricing software company and was working on a project at a company in the automotive space.  That company had hundreds of parts that were losing money with each sale. I hate to say it, but this scenario was not unique to this company and happened to some extent at every company that I have engaged with.   Look at your discounts, rebates and other incentives. Ask yourself and your partners on the sales team if you really need to be treating your smallest customers like you treat your largest customers?   For example, does the customer that spends $15,000 with your company deserve the same extended payment terms as the customer that buys over $1 million a year? Look at your rebates. Should you continue to give rebates to customers that have not shown any growth or potential for growth?  Neither of these examples should be taken as an “absolute”. Work with your sales partners to understand what is driving these behaviors.  Are there market standards?  Is the customer poised to grow?   Tools. Process and Governance No pricing action is sustainable without the infrastructure to support the changes.  Development of these tools and processes can be done in-house or with the support of outside subject matter experts. For either approach, make sure you scale accordingly.  Do not buy the Ferrari, if your team is just learning how to drive. Take time to document processes. This will allow the team to understand what actions and which team members need to be engaged during the change process. You may want to consider brining in a partner to help in this step. These partners can provide knowledge and experience that you may not have internally. After developing the process, determine which areas can be improved with tools.   These tools may be developed in-house or may come from a 3rd party provider. These tools should become part of the process, If using a 3rd party tool, you may need to adjust what you do to fit the tool seamlessly into your process.    The final piece is governance. Governance should not be seen as a roadblock to doing your job.  It should be seen as guidelines to make sure that the job is done correctly and aligns with the goals of your organization.  It creates a methodology to ensure that the right checks and balances are in place when something may have a material impact on your business.

Author: Chuck Davenport It is easy to see the importance of sustainability and to make commitments that align with ESG targets. Execution of intentions is much more difficult. Over 2/3 of Fortune 500 companies have made timeline-based commitments to various ESG goals. However, 40% of those are falling behind in their progress and several high-profile ones have abandoned some of their key objectives altogether, often because there is not a clear path to value for stakeholders. Many early success stories are consumer-focused ESG offers. In a recent global study of over 23,000 consumers, respondents reported a willingness to pay a premium for sustainable products - on average, a premium of 12%.  This premium should trickle up the value chain, enabling every supplier to receive its commensurate share, but there are many cases where this is not happening. Without a new mindset around pricing and value capture for ESG-enabled products, companies risk missing viable opportunities for this important, purpose-driven business segment. The path to long-term success in ESG for B2B businesses is not radically different from any business, but there are three important nuances that many companies overlook – context of the business ecosystem, consideration of new currencies of value, and the consequences of expected S-curves and E-curves.  As companies launch initiatives, they quickly learn that unilateral efforts are hard to execute – the ecosystem is critical to success. Also, carving out a unique value using a broader range of value currencies enables stronger monetization. Finally, planning, communication, and executing against realistic expectations of progression of customer adoption and production efficiency enhance the viability of these important initiatives. I would love to see all of you at my keynote presentation in the spring PPS conference in Chicago April 23-26.  I will be speaking on Friday at 11:15. About: Chuck Davenport is a Pricing Expert Partner at Bain and Company.  He has over 27 years of experience in Pricing and Profitability Management, both as a business executive and as a consultant and leads Bain’s efforts in Pricing for ESG and Dynamic Pricing.  He has also published, spoken, and lectured extensively on the subject of Pricing to MBA student at schools such as Emory, UNC Chapel Hill, Duke, Yale, Cornell, and University of Rochester.  Chuck holds an Electrical Engineering degree from Georgia Tech and an MBA from Emory University.

Author: DeAnn Hammer We often find that we can be an anomaly in the pricing world when we begin to engage our stakeholders in the pricing topic of operational efficiencies and transactional customer ease.  It’s a topic that many in the pricing community may not focus on, however, it’s become the fabric of our being in trying to elevate our company into a world class pricing organization. Why the focus here?  It starts with a turbulent experience in moving to a new operating system and swimming through a riptide of data.  You begin to ask portfolio managers if they understood the complexity of their flexibility in price options and prior negotiations.  Those portfolio managers are focused on launching new products, conducting price adjustments, and developing pricing strategies…well there is just not enough time to reflect and look back.  And if dared to turn around and look back at the mountain of data and creative pricing agreements, the task is more than daunting. Imagine the time investment required and the emotions of sales leaders.  It’s overwhelming and consuming.  There’s no rearview mirror in marketing.  How that pricing mess was created is not a concern.  Look forward and gain share.  The focus is only forward to gain share and volume. How do pricing operations professionals begin?  Listen. Hear from internal stakeholders and external customers.  What are the pain points that are expressed when it comes to pricing?  It has rarely been the price itself that presents as the problem. The external market often has similar responses around the world.  Even in the B2B space, customers are asking for a B2C experience. External Customers Seek ·      A high functioning easy to use ecommerce experience ·      24/7 pricing ·      Self-service options ·      Easy to analyze pricing options to compare vendors and value for the intended purpose Some Internal Customer Feedback ·      Pricing can be overwhelming ·      Margins can be difficult to see and understand ·      Clarity in price options available to target customers isn’t always transparent ·      Global business teams struggle with currency fluctuations, import/duties/tax ·      If pricing isn’t’ centralized, who do I call for help and how do I get this fixed? As pricing leaders, a very large part of our value is taking an assessment of the situation and understanding that if you can make your pricing strategy simple, does this leave room for growth?  If customers find it easier and easier to shop your offering will transactions increase?  Simplicity in pricing boosts sales effectiveness. Our motto has become, if you can’t see the data or strategy clearly, neither can your customers.  Do you need to manage thousands of price points?  How can you reduce manual work or work that requires a subject matter expert?  Can you automate your quoting process and minimize approvals? Think about the customer experience journey in placing a purchase order.  Can customers independently push forward an order with accurate pricing without a phone call to customer service or their sales professional?  All purchasing agents sometimes ask for is a matching a purchase order to the material delivered on their dock with an invoice that has the same information.  MIND BLOWING. While this seems intuitive in the B2C world, in the B2B space in certain industries, software and capabilities are investments yet to materialize as operational priorities.  Be careful that your approval processes, promotions, volume buys, and special pricing agreements can be received and programmed into your customers systems.  In many cases rather than looking at your total pricing offering, your customers leave margin on the table when complexity is present.  Are you expecting your customers to unravel your tangled data set if a competitive option is available and easier to buy.  You need automation, clearly defined processes, leadership engagement, and governance. In conclusion, the journey towards mastering the operationalization of pricing demands a relentless pursuit of simplicity in the face of complexity. Strive for pricing excellence by embodying the principles of speed, accuracy, and an unparalleled B2C experience. Rise to the challenge and elevate your strategies through heightened standardization, seamless automation, and an unwavering commitment to simplification. As you embark on this transformative course, remember true mastery lies not in the intricate, but in the art of making the complex appear effortlessly simple.  May your pursuit of pricing proficiency be marked by innovation, efficiency, and a resounding success that leaves an indelible mark on the landscape of your business.

Author: Steve Peppler Rebates and incentives have evolved to improve sales and profitability, not to put a leaky bucket in the system or strain relationships. By embracing intelligent automated rebate management, businesses can unlock their true value. No discrepancies or disputes and no revenue leakage, as the author explains. Steve Peppler, a founder of Flintfox, has extensive pricing experience honed from senior finance and sales management roles at Kraft, Pepsi, Western Digital and Hewlett Packard. During his 20 years at Flintfox, Steve has worked closely with distributors from all sectors and all regions, developing pricing solutions at companies including US Foods, WESCO/Anixter, SiteOne Landscape Supply, PartsTown, Opici Distribution, Sonepar Norway, PJP, Sarnova, Horizon Beverage, Dagrofa FoodService, L&F Distributors, and CERTCO. Right now, consumer goods businesses are turning over every stone to seek out ways to improve profitability - from cost savings to price rises. So, for any business operating an incentives and rebates program, this should be the first place to look. As an essential part of the retail-manufacturer model, incentives and rebates have the power to boost sales and strengthen relationships, but they can also be a cause of added friction and lost income. As rebate programs have become ever more complex with various tiers, thresholds, and terms and conditions, it’s become almost impossible to manually manage them efficiently and effectively, leading to issues. This complexity in rebates regularly results in errors which are estimated to cost businesses $3.07m on average every year. No business can afford this kind of revenue leakage, but for manufacturers operating on lower margins where rebates are a large contributor of profit, this can be catastrophic. Another common rebates pain point is the struggle to manage the added complexity that arises when brands sell through various alternative channels. New channels create additional layers and processes for rebates, and without having all data in one central location, tension can arise from inconsistent execution. Rebate processing errors inevitably lead to disputes, which are time consuming to resolve and create cashflow headaches. With inflation causing mounting tension in manufacturer-retailer relations, rebate discrepancies can damage relationships even further. The solution so far has been to throw more bodies at the problem, manually spotting and rectifying these errors, but this is another money drain. One consumer goods manufacturer was experiencing disputes on 90% of its rebate claims, which required a team of six people dedicated to unpicking the issues. Unlike other areas of finance or operations, rebate management has been slow to embrace change. But, by transitioning to intelligent automation, businesses can eliminate errors without additional resources. Pricing automation and rebate management systems can handle the entire process from start to finish - rebate creation, submission, validation, and payment. Everything is managed in one easy-to-use place, and fully automated. Sell-side, automated intelligent rebate management automatically accrues the expense, verifies the eligibility of the rebate claim from customers, and ensures that all required documentation has been submitted. Buy-side automatically generates accurate and timely claims to land swift payment while providing clear and auditable backup details to speed up vendor approval. By using these types of systems, businesses can gain real-time visibility into how their sell-side rebate programmes are performing and where changes to terms might be needed to improve margins. With buy-side rebate management, you have an accurate and up-to-date rebate balance sheet to ensure you’re not leaving money on the table, and can ensure prompt payment by suppliers. If errors are made during contract setup, automated systems can automatically generate adjustment accruals to ensure accrued amounts are correct. You can also track progress against rebate tiers and then adjust purchases to achieve a higher tier and maximize margins. Rebates and incentives have evolved to improve sales and profitability, not to put a leaky bucket in the system or strain relationships. By embracing intelligent automated rebate management, businesses can unlock their true value. No discrepancies or disputes and no revenue leakage.

The best pricing strategy is useless without consistent price enforcement. Discount management is a massively underestimated lever for increasing profits. In fact, many companies do not necessarily have a price problem but a price enforcement problem on an individual level, which leads to a considerable discrepancy between list and transaction prices – or, if list prices do not exist, between customers’ actual price acceptance and the finally negotiated transaction price. This sustainably destroys margins companies need desperately. Strategy and enforcement are the two inseparable sides of professional pricing. Especially in industries where list and transaction prices are typically far apart, such as in many B2B or negotiation-intense B2C businesses (e.g., insurance or automotive), the key approach to quickly and directly improving a company’s earnings is not necessarily to redesign the pricing strategy but to improve price enforcement. The bigger the gross-net gap, the bigger the potential for well-thought-out discount management. Every percentage point of discount given unnecessarily is a lost margin that cannot be re-gained by an alternative increase in sales in the future (more on this later). At the same time, the individual negotiation and discounting strategy of individual sales employees in the last mile (“in front of the customer”) represents a black box for many companies. It is often unclear what actually happens there. However, all the sources for unnecessary and margin-killing discounts center around this often routinized sales behavior and its influencing factors. Unnecessary Discounts Kill the Margin Twice Over the past 25 years, our price and sales optimization projects have repeatedly shown that up to 50-80% of the individually given discounts are granted unnecessarily. Companies thus give away considerable margin potential. Unnecessary discounts do not only waste margins and cost money in the short term but also have fatal consequences in the long term. The reason is that if a discount is unnecessarily awarded today, it will become the new reference price of the negotiation tomorrow, making it a margin killer in the long run. The short-term focus on quickly increasing sales by discounting typically neglects this expensive consequence. Figure 1: Discount iceberg When and How to Give Discounts Not all discounting is unnecessary or harmful in the long run. A discount can actually be an essential sales tool if: · The discount triggers a purchase decision that the customer would not otherwise have made, i. e., either helps the customer cross the “Rubicon” if that final spark has not yet been ignited or serves as an individual price differentiation to open up new customer segments that otherwise could not be won. · The discount draws customers into higher-value options or promotes cross-selling, increasing the wallet share. The most important rule is that discounts must be used selectively. They are not merely a price reduction but a reward for better customer behavior, and long-term consequences must be analyzed. We always need to ask ourselves whether the customer would not have made the purchase without the discount. Define what the customer must do to qualify for the extra rebate and quantify whether the short-term gain is worth the long-term costs. Why Are the Most Important Rules So Difficult to Follow? Two of the most common reasons for disregarding these rules are the following vicious circles that reinforce each other: 1st vicious circle: Companies often assume that customers are primarily bargain hunters. Any inquiry about the price is quickly misunderstood as a demand for more discount. However, customers do not always inquire about the price because they would not buy without a discount. They often only do so because they want to understand the calculation or to fulfill their obligation to have at least asked. If the company grants discounts because of the chronic “customer = bargain hunter” assumption, it quickly becomes a self-fulfilling prophecy: Even customers who were not bargain hunters were raised to be bargain hunters as they were rewarded with unexpected discounts whenever the issue arose. 2nd vicious circle: The second vicious circle is the orientation towards competition and is also a self-fulfilling prophecy: The most common internal justification for giving discounts is to keep pricing “in line with the market” to remain “competitive.” And if we ask a company that started price wars, the answer is a reference to the competition. This leads to undercutting and discounting competition, which is not the customers’ but the companies’ fault. These vicious circles underline that the core issues center around assumptions, perception, routines, and behavior. This is why all measures to minimize unnecessary discounts must start with challenging and systematically improving sales behavior, and this is why “Behavioral Discount Management” is the key to a sustainable profit increase. Figure 2: The self-fulfilling prophecies in discount management Reasons & solutions for unnecessarily granted discounts Individual negotiating and discounting behavior is always determined by many influencing factors. This is why we have divided the root causes of unnecessary discounts into the dimensions “Knowledge,” “Motivation,” “Necessity,” and “Ability” below and provided suitable solution proposals. Dimension #1: “Knowledge”: Biased assumptions, misleading and missing information 15-25% of all discounts are granted unnecessarily because of biased, misleading, or missing knowledge. Firstly, sales beliefs about customer decision strategies are often strongly biased. On average, they overestimate the percentage of bargain hunters in their customer base by factor two. At the same time, the ratio of price accepters in the same range is underestimated (see GRIPS-Types). It is often assumed that customers need “a good deal” to buy, and every question about the price is immediately interpreted as a call for a discount. It is often assumed that customers need “a good deal” to buy, and every question about the price is immediately interpreted as a call for a discount. Secondly, what they know pretty well are their costs, which is not only unnecessary as sales are supposed to be a value, not a cost expert, but it is misleadingly anchoring everybody in the sales team on the wrong numbers when setting the expectation level for the negotiation. Finally, the relevant data is not provided systematically, although potentially available: How many discounts have customers received in the past? Does this make sense from a CLTV point of view (see Figure 3 for a typical example)? Which sales representatives were able to sell with less discounts than the average? What is their secret? Collecting and exchanging these insights internally is easily possible. It would be highly insightful and motivating, but it is rarely done in practice. If you want to see what such information can trigger, start by providing information as shown in Figure 3, and then (announce) publish the ranking of sales reps by their average discount granted. You will see miracles happening to your average discount in the next quarter! Figure 3: Customer example – erratic discount allocation Dimension #2: “Motivation”: Misaligned and nontransparent incentives 15-30% of discounts are given unnecessarily due to sub-optimal incentive systems. No matter how well the sales training, tools, and tactics are designed, if the sales team is incentivized primarily by sales quotas and revenue targets while at the same time being able to grant discounts according to their discretion, the result is an explosive mix that continuously and reliably erodes margins. The problem is not the employees but the design of the incentive system, which promotes this self-optimization to the detriment of the company’s profitability because of misaligned personal and company goals. However, even if the goals are aligned, an additional issue is that incentive systems are often too complex and nontransparent to effectively and efficiently steer sales behavior. Often, too many elements of the incentive and benefits plan have been added over the years, some of which contradict themselves. Moreover, the individual status is unclear daily, or the feedback provided to reach a specific target is not given properly. An incentive system is intended to steer behavior. Two things are essential for this. Firstly, the targets need to be aligned with the company strategy and across teams and departments. Secondly, the incentive systems, their requirements, and consequences must be transparent at any time, not only once a quarter or at the end of the year. However, an incentive system is often historically grown and hard to change. When changing the incentive system, it is not possible nor necessary to adjust everything at once. It is more about developing a target image and successfully migrating from the current status to this target. It is helpful to take a three-step approach: 1. A quick win is often to improve the sales team’s transparency and understanding of discounts’ monetary impact on individual incentives. A lot can be achieved with simple means and intelligent, preferably immediate feedback, e.g., the feedback on peer performance concerning discounting can be a very effective intrinsic motivation without any additional monetary incentive needed as the competitive aspect often triggers more commitment than any extrinsic incentive. 2. The next pragmatic step is to gradually evolve the existing incentive systems by eliminating inconsistencies and misleading incentives in the current system. In some cases, it is also possible to include a more profitability-related component in addition to the revenue-related incentive components, e.g., an incentive based on deviation from the target price. 3. To conceptually align corporate goals, desired behaviors, and incentives, developing a long-term vision based on a greenfield approach is necessary rather than an evolutionary perspective on the existing incentive system. With such a vision, negotiations on how, in which stages, and when this target incentive program will be achieved can begin immediately with the internal stakeholders involved. Read more about Incentives and the factors which need to be considered when optimizing incentive models here: https://www.vocatus.de/behavioral-incentives-higher-sales-growth-through-effective-incentive-models/ Dimension #3: “Necessity”: Confusion of price setting vs. execution and suboptimal escalation Two issues are essential when creating the structural necessity to avoid unnecessary discounts. Figure 4: Separation of price setting and price execution Secondly, besides the structural separation of price setting and execution, pricing governance must also define the escalation process in individual cases. Escalating the discount decision to the next hierarchical level is too easy, creating an enormous margin drain as any escalation separates customer expertise from discount authority and leaves the subordinate with a decision dilemma. If he does not grant the discount, the sales representative will argue that he cannot reach his sales targets. If he grants the discount, he has taken over the responsibility, and the sales employee with the actual customer contact is “off the hook.” This leads to notoriously excessive discounts and an enormously high burden on managers handling these requests repeatedly. Experience shows that 10-25% of all unnecessarily granted discounts in companies fall into this category, sometimes with strong aberrations, as the following real-life example illustrates. Client example One of our clients had an internally defined maximum discount of 25%. However, customers were granted an average of more than 32% discount. How could this happen? This discrepancy arose because over 90% of the negotiations were escalated to the next level, and 85% were waved through as the regional managers did neither know the customers nor did they want to have internal fights with their sales representatives. This whole routine induced enormous internal efforts to manage this process and a considerable margin loss for which no one felt responsible. Moreover, the customers learned to disrespect their direct counterparts and always trigger an escalation to the next level. So, one rule companies should embrace more when it comes to price execution is: “Keep the boss out!” If a sales representative requests a higher discount for their customer, the decision must be pushed back to the sales rep level by pointing to the sales increase they must achieve to make up for the additionally granted discount (see Figure 5). Figure 5: Transparency on the trade-off between discounts and sales All these measures – the increase in transparency (knowledge), the improved incentive system (motivation), and the more transparent governance (necessity) – eventually help to evolve an internal negotiation between manager and sales representative to an external negotiation between the sales rep and the customer, and this is where it should take place. Once we make this shift, we must ensure that the sales team is well-equipped to negotiate successfully. This brings us to the last dimension. Dimension #4: “Ability”: Ingrained routines instead of negotiation excellence When it comes to the actual negotiation with the customer, inadequate preparation, poor negotiation skills, and a lack of self-confidence to counter requests for discounts account for another 10-40% of unnecessary discounts. Most of these issues trace back to implicit yet ingrained sales routines. The first issue is typically the missing preparation. Firstly, the sales staff is unprepared with ways to defend discount requests. Secondly, they are not equipped with strategies to divert monetary discount requests into other currencies like more value or service, which is often more attractive for the selling company. And finally, they mostly forget to demand a counterpart from the customer, although this is the “golden rule” of discounting: never ever grant a discount without requesting the customer to give something in return. A discount is not a price reduction but should always and only be a reward for better customer behavior! The second issue is that salespeople often believe they are simply selling a product and its features. If possible, they have to explain all of them and then hope the customers understand them and buy. If they do not, they explain the advantages of the product again. If the customers still do not buy, they give a discounts. This classic sales approach only focuses on the product’s “value,” i.e., WHAT the customer presumably wants. It entirely neglects the customer’s decision-making strategy, i.e., HOW he decides. However, selling is ultimately about influencing purchasing decisions. That is why we need to stop selling products and start managing decisions. If the sales employees do not know the decision-making strategy of the customers and cannot read them on this dimension, they risk using the wrong tactics and may be too quick to offer discounts. The GRIPS-Typology (see Figure 6) describes this second dimension of sales excellence and helps to better prepare for and run negotiations to systematically avoid unnecessary discounts by training sales representatives on two tasks: identifying the decision strategy of the customer and negotiating accordingly. Leveraging this second dimension significantly improves profitability and conversion at the same time. If we focus more on managing these four dimensions of price execution, we will minimize the unnecessarily given discounts and increase margin beyond any expectation. However, we must realize that managing behavioral change and bringing more light into the “black box” of individual sales routines is not a sprint but a marathon. Yet, engaging in it pays off exceptionally well and can be started immediately with the small measures outlined above.

Author: Avy Punwasee In the ever-evolving world of business, staying competitive and maximizing profitability is a constant endeavor. Pricing, often considered the unsung hero of profit generation, has the potential to play a pivotal role in helping businesses outperform their competitors in 2024. To capitalize on pricing potential, every organization can master a few essentials of pricing: identifying and using the key pricing levers for 2024 and the best practices in budgeting for pricing. The Pricing Process: A Hallmark of High-Performing Companies First, a little motivation to include pricing in your strategy and budget for 2024. The 2023 Survey conducted by Alexander Group Inc. and Revenue Management Labs* revealed some compelling insights about the correlation between pricing practices and business performance: Annual Repricing Reviews: High-performing companies are more proactive, with 80% engaging in annual repricing reviews, compared to 56% of low-performing companies. Regular reviews are essential to adapt to market dynamics. Supply and Demand Management: A staggering 73% of high-performing companies use pricing as a tool to manage supply and demand, while only 44% of low-performing companies do the same. This emphasizes the need to employ pricing strategies that align with market conditions. Ignoring Price Elasticity: Surprisingly, 51% of low-performing companies do not review price elasticity, regardless of their performance. Understanding price elasticity is essential for optimizing pricing strategies. *The joint Alexander Group Inc. and Revenue Management Labs 2023 CEO survey reached out to more than 300+ companies with a minimum of $150 million in annual sales. Three Budgeting Levers to Drive Profitability in 2024 Going into 2024, companies must pull the right pricing levers. In brief, there are three essential budgeting levers to consider to drive net price: price optimization, being more efficient with discounts and promotions, and mix management. Price optimization involves raising list prices, which is a commonly used and quick-to-implement approach but may lead to customer pushback due to its high visibility. The goal here is to apply price increases strategically. Discount and promotion strategy focuses on reducing discounts to ensure they drive incremental revenue, offering low client-side visibility and account-level flexibility but requiring advanced analytics and potentially encountering resistance. Mix management, centered on premiumization, is an underutilized lever that can provide enhanced customer value and drive transformative changes, though it demands a deep understanding of customer needs and significant sales effort. Budgeting for Pricing: Best Practices It is one thing to budget for pricing but another to effectively allocate resources for setting and managing prices. Effective budgeting for pricing requires meticulous planning and consideration. Here are some best practices to guide your approach in 2024: 1. Market Benchmarking We first recommend market benchmarking for price to assessing your performance in the three key areas below and to set a standard for which you can compare your performance in 2024. Assess Market Trends. Here you want to focus on the movement in the market across price and discounts, customer buyer behavior, regional differences. Your analysis can help identify whitespaces and opportunities to increase market share, price, and margin. Price Position: Analyzing your price position involves assessing how your product or service is priced in relation to competitors and the market. We recommend identifying your key competitors and evaluate your price and discount position relative to them. Then, understand how competitors typically adjust pricing strategies and assess regional differences. Value Offered: Evaluate the value your product or service offers compared to the next best alternative. This is a good opportunity to overlay your customer segmentation and where these unique customer groups find value. 1. Understanding and Anticipating Your Pricing Cost Structure in 2024 Understanding and anticipating your pricing cost structure is a critical aspect of pricing strategy and fiscal management for any business. Companies use this information to adjust prices in anticipation of cost increases. This is an essential step but just the bare minimum of how this information can impact your bottom line. We have split these into internal and external cost drivers and have identified below several key components that make up the cost structure associated with pricing your products or services: Internal cost drivers for pricing are the factors within a business’s control that influence the cost structure associated with delivering a product or service. They can include supplier or vendor prices, overhead costs, and transportation costs. External cost drivers are outside a business’s direct control and can significantly impact a business’s cost base. They may include inflation induced rising input and raw material costs, upward shifts in labor costs, and supply chain bottlenecks such as what we saw during the pandemic. How High Performing Companies Applied Cost Structures to Pricing Strategy In response to the disruptive market conditions witnessed in 2022, high-performing companies adopted a multifaceted approach that clearly diverged from low-performing companies: Raised prices in anticipation of inflation. Built solution-based value into their product offerings to improve their competitive pricing position. 1. Focus on Driving Incremental Profitability through Mix Management Inflation is clearly slowing though not at the rate federal banks would consider ideal. From June 2022 to June 2023, the Consumer Price Index (CPI) dropped by 59%, according to the U.S. Bureau of Labor Statistics. Slowing inflation means that inflation-based pricing is becoming increasingly unfeasible as a pricing strategy. If raising prices remains your sole strategy, we predict a few outcomes. Profit margins will become increasingly squeezed as real-time cost data constantly evolves. Competitors will seize the opportunity to lead price and expand profit margin capture. The question becomes how to realize price increases without the visibility of changing prices. First, developing granular customer segments by region using behavioral metrics. The second is to identify whitespace opportunities in the following areas: total out of pocket, new pack sizes, and additional unmet needs. Main Takeaways In the face of slowing inflation, companies need to consider the long-term implications of pricing strategies and prioritize those that drive sustainable profitability. In preparation for 2024, it is essential to: Assess your current price position against competitors in the market. Develop a deep understanding of your cost structure to enable value-based pricing. Enhance long-term customer value through strategic product and service mix offerings. In conclusion, pricing is not just a number; it is a dynamic and strategic tool for unlocking profits and outperforming competitors. By budgeting for pricing at a granular level, pulling the right pricing levers in 2024, and adhering to best practices, businesses can navigate the competitive landscape with confidence and drive sustainable profitability.

Author: Danielle Ray A global strategic plan (GSP) is a document built from an organization's mission, vision, and objectives to achieve its long-term success. Beyond that, it is a powerful tool that will assist in aligning your pricing department with corporate strategy to improve communication and collaboration while gaining a competitive edge and increasing profitability. These are most often used in the context of international expansion or growth because it considers diversity in markets, cultures, competition, and legal or regulatory conditions. Even regional organizations can utilize a GSP because it provides strong inputs for decision-making. Some of the elements used to build a GSP are vision and mission statements, SWOT analysis, External Factor Evaluation (EFE) Matrix, Competitive Profile Matrix, and Internal Factor Evaluation (IFE) Matrix. A pricing organization benefits by capitalizing on the work already done in the creation of the corporate GSP. A GSP for Pricing ensures that everyone has a common vision that can lead to improving performance and efficiency. The consistency in objectives provides a clarity that can prevent unintended discrepancies in pricing strategies or goals. The communication between departments and to leadership improves, and the collaboration will increase as contradicting strategies are eliminated. By utilizing and building upon the competitive information from the GSP, pricing can implement better strategies and improve execution to further the company's competitive advantage and market position. The alignment results in better decision-making, competitiveness, and profitability. The tools used to build a GSP are ones that pricing may already create for themselves. By sharing the information across departments or teams, there is a better allocation of resources to the priorities important for supporting market penetration or expansion, value propositions, forecasting, and product lifecycle strategies. The resulting measures and analysis provide pricing the opportunity to give feedback on what is working and what is not. Adjustments can then be made to the GSP to maximize success. In today's fast-paced and ever-changing landscape, pricing is critical to driving profitability and long-term success. The challenge and complexity of setting optimal prices in diverse markets requires pricing to maximize their effectiveness by using the corporate GSP to create their Global Strategic Plan for Pricing. Ultimately, the GSP provides pricing with a roadmap to success. If you want to learn more about how to create a global pricing strategic plan that aligns with your GSP, join me at the upcoming 2023 European & Global Professional Pricing Society Conference.

"90% of the reason I’m successful in my job is because PPS conference experiences, the education, and this networking group. The rest is just executing." Nicole Sepulveda, CPP Pricing Manager at Rogers Corp Attending PPS conferences is not only a chance to leave the office for a few days, but also to gain new knowledge that can change your career perspective and grow your skills. The recent Fall Pricing Workshops and Conference focused on the latest trends, strategies, and best practices for pricing professionals in a variety of industries across the country. The conference provided many popular networking and connecting opportunities with like-minded professionals and created space to analyze and respond to the changing climate of the pricing environment. Check Out The PPS ATL Conference Photo Gallery Here! Keynote Sessions When planning an event, selecting the right speakers is critical for its success. Keynote speakers, specifically, set the tone for the event by providing a thought-provoking and engaging perspective on the topic at hand. Ensuring that the audience is captivated and attentive is no cake walk, but instead requires a great deal of preparation, careful consideration of talking points, and often a great deal of experience to lend to the speaker’s credibility. This fall conference speaker line-up not only presented riveting topics like “Top 10 Learning From 20 Years of Pricing” and “Inside the Minds of Generative AI”, but also consisted of heavy hitters such as: - Sonya Roberts, President, Cargill - Joanne Smith, President, Price to Profits Consulting - Jean Manuel – Izaret, Sr. Partner, Boston Consulting Group - Jeet Mukherjee, VP Head of Pricing, Holden Advisors The sessions also left viewers with some food for thought with some of the more popular quotes being: - "Things left uncontrolled will deteriorate over time." - Joanne Smith - "Never let a good crisis go to waste. It will trigger rethinking." – Florian Bauer - "A 3% price increase across the board doesn’t work." - Fred Puech Workshop & Breakout Sessions Workshops and breakout sessions are an incredibly effective way to engage participants and facilitate meaningful conversations. Some of the more popular sessions amongst attendees were Florian Bauer’s “Success Factors of Discount Management”, Frederico Zornig’s “A Complete Pricing Journey”, and Vinicius Silvestrin’s “Demystifying AI: Understanding Machine Learning& It’s Practical Applications”. By striking the right balance between engaging content and personalized interactions, facilitators were able to create highly anticipated and well-attended sessions that were both enjoyable and impactful. In Conclusion Attending a professional pricing conference can be a great way to build your network and create lasting connections with other pricers. With learning and networking opportunities available in an encouraging environment, you won’t find a better event for pricers looking to further their career goals. Learn more about our next conference by visiting pricingsociety.com , where there's plenty of useful resources for networking and getting the most out of your experience. We invite you to join us in 2024 and continue revenue management conversations around topics that matter most!

Author: Debra Patek Pricing, at its core, is about capturing value. Through segmentation, we can capture even more value by leveraging differences in willingness to pay (WTP). The idea is simple: set lower prices for those less willing to pay, and higher prices for those who'll pay more. By doing so, we optimize revenue across diverse customer scenarios. Yet, segmentation extends beyond categorizing customers or adjusting prices—it’s about aligning with broader objectives while adapting to business and competitive constraints. The key lies in matching segmentation to these underlying realities. Here’s the challenge. Segmentation methods are as varied as the customers and products they're designed for, differing in scope, granularity, and technique. With so many options available, understanding and choosing between them can be overwhelming. The Big Picture: Fences and Magnets However, when we step back and take a broader view, we see that price segmentation essentially boils down to two core actions: building 'Fences' to ensure the right price reaches the right customer and creating 'Magnets' to attract customers by aligning products and pricing with their needs. ‘Fences’ are about capturing existing value, while ‘Magnets’ are designed to draw in additional value. Whether used individually or in tandem, each plays a distinct role. For clarity, we'll use the terms ‘Fences’ and ‘Magnets’ to represent these foundational approaches. Now, let's unpack these core approaches in more detail. Segmented Pricing Strategies [Fences] Core Concept: Often referred to as segmented or differential pricing, ‘Fences’ create clear price boundaries to isolate and monetize differences in willingness to pay. Economic Basis: You might recognize this type of segmentation from economics, where it is called "price discrimination". Despite the negative connotation, it can make products more affordable for price sensitive buyers, without compromising total revenue. The left demand curve shows limited revenue from a single price. The right illustrates increased total revenue through segmented pricing, showcasing multiple, additive revenue streams. If you love this blog, be sure to check out other related pieces: - The Domino Effect - Price Model Optimization - Raise The Bar Application in Practice In theory, price segmentation is straightforward: match the price to a customer's willingness to pay. But in practice, it hinges on the effective identification of significant variations in willingness to pay and the enforcement of 'fences'. Quantifying WTP can be a challenge. It often involves combining insights from various data sources like sales records, surveys, and customer feedback to understand buying behaviors, gauge price elasticity, and assess economic value. It's also beneficial to draw on the insights and experience of customer facing employees (sales, customer service) as a supplement to data analysis. Often, direct measures of willingness to pay or elasticity are replaced by proxies. These substitutes, based on personal or situational attributes correlated with value or willingness to pay, act as 'fences' that deter resale and maintain price integrity. Figure 2 illustrates some common segmentation fences. Figure 2: Common Segmentation ‘Fences’ Real world examples of this type of segmentation include: · Apple’s Education Pricing offers reduced prices to students and educators · Soft drinks are priced significantly higher at entertainment venues than at fast food restaurants · Senior citizen discounts rely on age as a proxy for WTP · Theater Tickets are higher for weekend evening shows compared to weekday matinees · Bulk Purchases typically have reduced per-unit prices Segmented Pricing Opportunities and Challenges: ‘Fences’ can offer quick returns but demand careful planning to balance the associated benefits and risks. The Upside: When done right, ‘Fences’ offers several benefits: · Increased Revenue: Aligning prices with each segment’s WTP boosts revenue · Market Expansion: Attracts diverse customers by offering varied pricing · Purchase Incentives: Motivates increased purchases or long-term commitments · Quick Adaptation: Enables rapid price adjustments to market shifts The Downside: There are challenges to mitigate: · Customer Alienation Risk: Clear criteria are essential to avoid trust erosion due to inconsistent pricing · Risk of Brand Dilution: This can occur especially when lower pricing is introduced in expanded markets · Regulatory Considerations: Potential legal and regulatory challenges, especially globally · Arbitrage Risks: The potential for customers to exploit pricing differentials · Operational Complexity: The necessity for well-organized management and system support ‘Fences’ are a potent tool for tailored pricing strategies, driving both revenue growth and market diversification. However, the associated challenges require careful thought to protect brand image and customer trust. While ‘Fences’ offers immediate financial gains, the second strategy, 'Magnets,' focuses on building long-term value by understanding and aligning with diverse customer needs. Value-Based Segmentation [Magnets] Core Concept: More commonly known as value-based price segmentation, ‘Magnets’ align offerings with each segment’s distinct value drivers, enhancing perceived value and WTP through tailored strategies. Bottom of Form Economic Basis: Different segments are driven by distinct value propositions, each with its own demand curve. Value-based 'magnets' stimulate demand, resulting in a rightward shift in the demand curve, as shown in Figure 3. Figure 3: Value-Based Demand Shifts The left demand curve shows limited revenue from a single price. The right shows the results of an increase in demand resulting from a value-based strategy, which shifts the demand curve to the right, resulting in a higher price at the same quantity demanded. APPLICATION IN PRACTICE Understanding Purchase Drivers: ‘Magnets’ is more than just an understanding of customer needs or wants, but a deeper dive into the underlying factors driving purchase decisions, emphasizing the role price plays in these decisions. Specifically, this approach looks at the trade-offs customers are willing to make between price and other benefits, with a focus on where those needs intersect with profitability. Techniques like conjoint analysis and maxdiff are especially useful for quantifying these trade-offs, providing insights into how customers value different features and benefits relative to price. One of the core advantages of ‘value-based segmentation lies in identifying varied drivers behind different levels of willingness to pay (WTP). Regardless of price sensitivity, every segment has distinct buying motivations. A customer on a tight budget, for example, has different purchasing triggers than a bulk buyer looking to minimize unit cost. Similarly, those less sensitive to price may prioritize innovative features, brand reputation, or environmental benefits. Uncovering these underlying motivations is key and helps move the conversation from price to value. Figure 4 highlights common factors that drive willingness to pay a premium price. Figure 4: Common Drivers of Premium Pricing ‘Magnets’ Increasing WTP via Distinct Value Propositions: Building on these insights, increasing WTP via distinct value propositions becomes the next focus. The first critical step is identifying customer motivations. It goes beyond just satisfying customer needs. It's about attracting customers by tailoring offerings and prices to their unique values, which in turn enhances loyalty and boosts profitability. Though cost cutting and boosting volume have their place, aligning price with perceived value is often a more substantial source of value enhancement. The goal is straightforward: align price with perceived value and elevate perceived value to raise the price. Quick wins can be achieved by aligning prices and communication to the value already inherent in products. For a more lasting impact, and to enhance perceived value, in-depth research and the development of tailored offerings can cater to the needs and values of different segments. Strategies might include expanding the product line to offer more variety or even introducing new sub-brands specifically designed to appeal to particular customer groups. Real-world applications of these drivers are diverse, with companies either zeroing in on niche markets or broadening their horizons to tailor offerings that resonate with varied customer values and expectations. Examples include: Delta and other airlines segment based on the level of service and comfort Buffalo Trace Distillery offers bourbons at different price points (Buffalo Trace, Eagle Rare, Pappy Van Winkle) each catering to a different segment based on aging, rarity, and taste. Estée Lauder offers luxury products via different brands e.g. MAC for younger audiences and Aveda for eco-conscious. Value Based Pricing Opportunities and Challenges: Value-based approaches shifts the focus from price to value, justifying higher prices and building loyalty but introduces complexities. Opportunities: Enhanced Customer Loyalty: Tailored offerings increase customer satisfaction and loyalty Higher Perceived Value: Tailored offerings can command higher prices. Brand Differentiation: Alignment with segment value propositions helps stand out in the market. Enhanced Brand Perception: Balances brand while accommodating cost-sensitive customers Challenges to Consider: Increased Complexity: Due to need for tailored products and marketing. Investment Required: Upfront research and customization cost can be substantial. Delayed ROI: Due to the investment needs ROI may not be immediate. Value-based approaches involve upfront investment but can unlock higher levels of WTP by aligning offerings with specific customer needs and values. Companies must balance customer expectations with brand identity. Application of Insights ‘Fences' capitalizes on immediate revenue by exploiting current customer willingness to pay, though it can pose challenges to the brand and customer experience. 'Magnets', requiring an initial investment, builds long-term loyalty by aligning offerings with customer needs, elevating perceived value. Together, they form a balanced strategy. 'Fences' quickly taps into existing value from the market; while 'Magnets' nurtures and expands that value over time. This combination helps deliver near term revenue and promotes long-term loyalty and growth. High Level Steps: Segment Identification: Combine data analytics and qualitative insights to identify and understand distinct segments. Fences Application: Establish, communicate, and review pricing boundaries, ensuring they are clear, justified, and effectively enforced. Magnets Development: Uncover each segment's unique value drivers and adjust offerings and messaging to reflect these, ensuring optimized pricing for increased value capture. COMPARISON OF APPROACHES The following table provides a detailed comparison of two primary segmentation strategies, 'Fences' and 'Magnets', breaking down their respective impacts, opportunities, and challenges across key business areas. Conclusion 'Fences' yields immediate revenue at the potential cost of the brand experience. 'Magnets' invests in long-term loyalty by aligning offerings with customer needs. Combined, they balance quick profit and long-term value, leveraging the strengths of both for revenue growth and customer loyalty.

A well-designed and properly implemented monetization strategy makes all the difference for companies seeking to accelerate profitable growth. Yet, unfortunately, some treat pricing more tactically, operationally or as an afterthought. If you are looking for a pragmatic approach to quickly and tangibly improve your business impact, then join me on October 13 at the PPS conference where I will be speaking on “Giving Pricing a Seat at the Table”. For over 20 years I’ve been pricing and packaging some of our world's most innovative technologies with the likes of Cisco, Workday, Hitachi, ServiceNow and Okta. I’ll be sharing insights from my proven growth playbook that effectively balances simplicity and value capture. We will cover strategic choices around offer packaging design, tools to optimize sales pricing execution, organization design and cross functional operating model best practices.