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Discussion: Most Pricing Problems Aren’t Pricing Problems

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You see, most supposed “pricing problems” are usually just symptoms of problems in other areas. Pricing is the point of the spear, where the decisions, actions, and inactions of a bunch of different groups all come together and are made manifest as a price in the market. So, while pricing problems may be the symptom, nine times out of ten you can bet that the real root cause lies somewhere in marketing, sales, accounting, or sometimes, even HR.

But when companies stop at a default diagnosis of, “Something’s wrong with the pricing,” they never identify and fix the true root causes of the issues. Instead, they erode their margins further trying to “fix” the symptoms through price reductions and larger discounts. And thus begins a downward spiral as the “fixes” lead to more “issues”…which then lead to even more “fixes”…that cause even more serious “issues.”

The bottom line is this: Treating a symptom is never as effective as addressing a root cause. And it’s important to understand that most pricing problems aren’t really pricing problems at all.

Top Comments

Marcel van Harrewijen

Pricing Manager | Financial Business Consultant | Expert in Pricing & Commercial Finance

That’s so true. Pricing is moment of truth, all of marketing comes to focus in the pricing decision (R. Corey). Therefore one should first analyse if it is really a pricing problem.

Karin Colantonio

Pricing Strategist for South America

I really enjoy reading it. However I feel that sometimes it is Pricing fault. I saw many times Pricing with an arrogant behaviour. Pricing departments are always more concerned about profits, and sales for example are (more often) worried about sales volume, keeping the client and so on. I believe Pricing is responsible to try to develop a good talk with other areas, providing a cooperative environment. I know sometimes it is difficult to do in practice, but we can always try.

Jeff Robinson

VP Strategic Consulting at PROS

I couldn’t agree more. Somewhere in our Econ 101 classes, we got duped into believing that there are only two variables in business and they happen to be inversely correlated: Price and Demand (sales). Nobody told us about the other myriad of variables that ultimately drive sales, e.g. Product Quality, Innovation, Sales, Marketing, Customer Strategies, Relationships, Good Service, Reputation. We got duped into believing that if we are not selling enough, we need to lower price, and if we aren’t making enough margin we need to raise the price. P * Q = Revenue, and Q is driven by P, therefore everything revenue related is solved by P. That’s what we were led to believe. I personally believe the best pricing strategists take a holistic view of their company value proposition and drill into the root causes of their perceived problems. Most of the time, price ends up being the most expensive and least effective solution to fix all the other problems that get in the way of sales and profitability. Great read.

Liang Moh Ng

Marketing Senior Manager at Dell

I agree with the bottom line. Price is part of the Marketing Mix (Price, Product, Promotion, Place, ) and most of the time the root cause lies with the other parts. However, Price is an easy knob to turn and fix a problem. Since, Price can fix the problem, most people will naturally see the problem as a “Pricing Problem”.

Jeff Robinson

VP Strategic Consulting at PROS

I couldn’t agree more.  Somewhere in our Econ 101 classes, we got duped into believing that there are only two variables in business and they happen to be inversely correlated: Price and Demand (sales). Nobody told us about the other myriad of variables that ultimately drive sales, e.g. Product Quality, Innovation, Sales, Marketing, Customer Strategies, Relationships, Good Service, Reputation. We got duped into believing that if we are not selling enough, we need to lower price, and if we aren’t making enough margin we need to raise the price. P * Q = Revenue, and Q is driven by P, therefore everything revenue related is solved by P. That’s what we were led to believe. I personally believe the best pricing strategists take a holistic view of their company value proposition and drill into the root causes of their perceived problems. Most of the time, price ends up being the most expensive and least effective solution to fix all the other problems that get in the way of sales and profitability. Great read.

More Here: http://www.linkedin.com/groups/Most-Pricing-Problems-Arent-Pricing-4260036.S.5814043662731980803

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