Seek Customer Input Before Setting Prices

Pricing continues to be a hot topic in my line of work.

A few factors are prompting clients to look more carefully at their pricing strategies and price points.

The first is degree of competition. In retail, more and more U.S. banners are looking north of the border for growth. And in telecom, new entrants have put pressure on incumbents. One of the results is a re-examination of pricing by established players that are looking for new ways to maximize profits.

Another factor is a suspicion of post-recession changes in customer buying behaviour. I'm not sure we have seen a lot of hard data showing that these changes are real – we did see some evidence of a propensity for buyers of children's products to spend fewer dollars per item, but at higher frequencies. The suspicions are driving firms to investigate acceptable prices with their customers.

Finally we see innovation acting as a catalyst for rethinking pricing. Companies are in novel product or service and new go-to-market strategy mode again. Since the products, services, bundles and channels are new, pricing must be designed as part of the roll-out.

Regardless of the motivator, making pricing changes or new pricing decisions is tricky business. Relying on gut feel and what seems intuitive to the executive team, marketing team and sales team is inadvisable, and it will likely lead to sub-optimal decisions. But so is relying strictly on customer input and modelling, since models have a hard time accounting for all market variables.

There are a number of aspects to pricing we think clients should consider when making price changes or when bringing a new offering to market.

Some of the more important pricing considerations include:

1. Customer input and value perceptions

2. Brand position

3. Competitive position

4. Industry structure, including channels

5. Product or service life-cycle stage

6. Relative positioning of products and services, and bundling

7. Sales, promotions and discounting

8. Costs

Customer input and value perceptions are quite involved. Before we talk about 'how,' it is worth talking about 'why.'

Why seek customer input on pricing decisions?

Some of our clients believe seeking customer input is the most critical stage in designing a new pricing structure or setting prices – because if there is no demand, there is no point going forward. We have dealt with other clients who worry that customers will always suggest the current or suggested pricing is too high.

These are both valid views, but the answer is somewhere in between. There is certainly value in understanding demand at various price points:

• It helps to make brand decisions.

• It helps to make go/no-go decisions on the offering in question.

• It helps to make market and segment prioritization decisions.

• It helps to forecast production.

On the other hand, putting too much stock in what customers say can be dangerous, since customers likely:

• Won't fully understand the market.

• Won't be familiar with your strategy.

• Won't be completely aware of costs.

Capturing customer input on pricing is important, and the data should be treated more like a range than a finite point. It should inform but not necessarily drive pricing decisions.

May 31: How should customer input on pricing decisions be sought? Look for it on the Your Business home page.

Special to The Globe and Mail

Mark Healy, P.Eng, MBA, is a partner at Satov Consultants – a management consultancy with practice areas in corporate strategy, customer strategy and operations strategy. Mark's focus areas inside the customer strategy practice include consumer insights, customer experience, innovation and go-to-market strategy. He is a regular speaker and media contributor on topics ranging from marketing to strategy, in telecom, retail and other sectors. Mark is known as much for his penchant for loud socks and a healthy NFL football obsession as he is for his commitment to Ivey and recent Ivey grads. He currently serves as chair of the Ivey Alumni Association board of directors. Mark lives with his wife Charlotte and their bulldog McDuff in Toronto.

Thanks to The Globe and Mail
http://www.theglobeandmail.com/report-on-business/your-business/grow/mark-healy/seek-customer-input-before-setting-prices/article2024708/print/