About Best Practice Pricing

In today's economic environment companies must make every possible effort to retain and if at all possible, increase, their profits. Instituting good pricing practices is one of the most powerful ways to combat the rising costs of energy, transport raw materials, just to name a few. Yet, only a small number of companies seem to care at all about best practice pricing, resorting to erroneous methods they are familiar with, like "gut feel", "market price" or "cost plus". Why? Well, because cost cutting has been the mantra of business for the last 30 years or more, and most companies don't really know what best practice pricing means.

Thursday, September 24, 2009

Coming out on top!

As we coming out of the recession, some companies are taking advantage of the increase in consumer confidence and correcting for the pricing mistakes they made as we entered the recession.


Restoration Hardware, the upscale furniture and accessory store, is one example.


Here are some excerpts from an interview with Ian Sears, Chief Marketing Officer of Restoration Hardware (courtesy of Advertising Age): “As the recession hit, we dropped our prices by 20%. When that happens, and you end up discounting as much as we did and as much as our competition did, you, over time, begin to create some level of devaluing your products,"


But Restoration Hardware has began taking corrective action. They changed their advertising strategy to focus on more upscale channels, created a new website with a more exclusive “feel”, increased the quality and design of its offering, and, they increased their prices between 20 and 30%. All of these actions were meant to work in concert with each other to provide concurrence between company positioning, product mix, marketing mix and price.


So what will you do now as the recession is slowly coming to an end? You probably also dropped your prices in response to the weak economic climate - but is now the time to increase them? Or do you want to be stuck with the low profits of the recession, and see your competition race past you both in profitability and competitiveness?


Do you know what your customer’s new willingness to pay is? Their new price elasticity? Their new decision and value drivers? If you don’t (and unless you’ve just finished a price optimization study, you don’t) how will you find out? What plans and programs do you need execute in order to leverage all the new money coming out there as the recession comes to an end?


With regards to a bright future,


Per Sjofors

per@atenga.com

818 887 4970