RM and Pricing Vision

If profit is your company's overall goal, then price is your most powerful marketing tool to achieve it. Price is the most direct determinant of profit margin, and often also the one that can be changed most easily. This offers great opportunities to use price to maximise profits, but at the same time it creates endless possibilities to get it horribly wrong.

What's more, price is not just a determinant of the value generated by a transaction; whereas with cost, it is generally true to say 'less is better', with price there is no such rule of thumb that unambiguously guides your prices in the right direction. After all, price is also your most transparent representation in the market, and whilst a high price may mean good margins, it will probably fail to attract much demand. To complicate things further, each price is also a relative price, as it allows the consumer to compare the sacrifice required to obtain a product with the price of substitute products (your own or the competition's), past prices and future expectations, and of course his total disposable income. 

Being a key determinant of profit and a key driver of consumers' buying behaviour, price is a crucially important and enormously tricky variable to manage! In our view, that makes it worth articulating an explicit vision to guide your pricing practices. And once such a vision has been defined, it should be future-proofed periodically, because the business context for your pricing processes changes all the time. 

So what does it mean to create a RM & pricing vision? It depends of course on the unique characteristics of your industry, country and company. However, the list below can give you an idea of the questions that Pieter Dorhout Consulting can help you answer:

  1. Which variables can we control to balance demand and supply? For instance, can we offer 'fill-up' products, control the availability of low-margin products or force the purchase of high-margin ancillaries?
  2. What are the pros, cons and restrictions of using each of these control variables in different markets or scenarios? Can they be used in parallel, in sequence?
  3. Should we consider our price as a composite of many elements (surcharges, discounts etc)? And which one(s) should be actively managed?
  4. How much pricing power do we have in each of our markets? Are we leaders or followers, and is the market more like 'perfect competition' or is there some scope to cut our our own niches?
  5. How should our prices be differentiated to start with, e.g. across departure dates, distribution channels, brands?
  6. What is the scope for dynamically changing prices? Is it feasible, legal and effective to do so?
  7. At which level and with which frequency hould we differentiate and dynamically change our prices? Should we micro-manage prices or is it better to have a broad-brush approach to pricing?

Perhaps it wouldn't take you more than a few minutes to answer some of these questions, but even in that case, you would need to consider if the entire organisation share these views, and - most importantly - if your pricing or RM practices are consistent with your vision. If in doubt, contact us at This email address is being protected from spambots. You need JavaScript enabled to view it. !

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