What's the fastest way to profitably sell more of whatever it is your company sells? I argue that it's better pricing. Think about how your company sets prices: Are you confident that your prices capture the value of your products and services? When I ask managers this question, most respond with a chagrined: "Not very confident."
There are three reasons why "better pricing" should be your company's top priority. First, if your company is not setting the right prices, there are hidden profits waiting to be tapped. Second, small changes in price can lead to big profits. McKinsey & Co. studied the Global 1200 and found that if they raised prices by just 1% — and demand remains constant — profits would go up on average by 11%, for instance. How much will a 1% price increase boost your profits? Finally and best of all, in many industries prices can literally be changed on Sunday night and start generating more profits on Monday morning.
So how can you start improving pricing at your company? Follow the 4 Cs — Confidence, Compensation, Choice, and C-Level.
Instill Confidence in Your Front Line. Most sales forces don't sell in a manner that yields the most profit. Relationships, of course, are important. But to garner the highest price, your sales force needs to confidently articulate why your product offers the highest value compared to rivals. To be clear, "value" doesn't mean lowest price. Instead, it is the offering that provides the best "deal" (most benefits for the price) for clients. It's surprising, but most companies fail at this most basic task — they cannot articulate the value of their products and services. Can you?
If your product is better, let customers know how. You have to do more than say "ours is better" — this line is so commonly used that customers tune out. Go the extra step to quantify how being better translates into more profit. For example, a client recently quantified the millions of dollars it annually saves retailers by being better — through reducing product returns — and prospective customers responded with excitement.
Don't worry if your product isn't as good as the competition. After all, if customers only purchased the best, we'd all be driving Rolls Royce cars. Price can usually compensate for shortcomings. It's okay to acknowledge that your product has fewer bells and whistles compared to its rivals. But then use price to seal the deal by asking, "Are all of the rival's extra features worth the 25% premium they are charging?"
The bottom line: if your product is better than the competition, demonstrate it and charge more than rivals based on value. Conversely, if your product has fewer features, acknowledge it and justify a lower price.
To learn about the other three C's, click here to read the rest of the article at the Harvard Business Review's blog.