The more you know about which products make money and which don’t, the more easily you can adopt a better strategic and selective pricing policy. Three main pathways can be identified that actually lead to more effective pricing.

 

• Exploiting market advantages

• Changing the decision-making process on pricing

• Testing whether all the different pricing options are being proactively pursued

 

In the real world, some aftermarket companies actually enjoy market or structural circumstances that make pricing management easier. Have they just fallen into these situations by pure luck or timing, or have their advantages been effectively engineered deliberately? 

 

Companies that have the best personnel, in-demand parts and services, a strategic location and strong local relationships tend to have the most flexibility when it comes to pricing.

 

They also tend to avoid some of these potential pricing roadblocks:

 

• Responsibility for pricing being left to the sales department. (Who has ever met a salesperson who wanted to increase prices?)

• There is little or no finance department involvement to balance decision-making.

• Senior management’s remoteness from the detailed market circumstances makes it difficult to challenge sales views.

• No systems or mechanisms are available to easily assess more aggressive pricing opportunities.

• Data on the true net profitability of individual products/services to the customer is limited.

 

Not only could companies make structural moves that are more easily within their control, but research shows that upwards of 12 different pricing strategies are available to small businesses. They often appear to be under-exploited. The challenge is frequently not lack of familiarity with the particular pricing option, but about:

 

• Having enough management time to check whether the particular pricing options have been fully considered.

• Understanding the pricing relationship to competitors and what drives it.

• Examining price opportunities and developing insights on an individual product line basis, rather than across a range.

• Management’s ability to challenge pricing decisions.

• The effectiveness and rigor with which the pricing strategies are implemented.

• The information base and systems needed to do each step.

 

In tough economic times, pricing can literally make or break a business. Be sure to visit and revisit your pricing structure often in order to maximize effectiveness.