Module 6 Pricing Policy

• Pricing policy


  Rules or habits, either explicit or cultural, that determine how a company varies its prices when faced with factors other than value and cost that threaten its ability to achieve its objectives

  
• Pricing policies are not the same as personnel policies that determine who has authority to approve discounts
• Pricing policies


  State explicitly the criteria that should be used when deciding whether or not to grant a price exception
• Pricing policies should be applied the same way by all sales managers to all similar requests for exceptions
• Customer purchase behaviour


  Influenced by the expectations that the seller has created, not just price and product/service

  
• Retail consumers expect a new fall fashion to be discounted soon


  They may not buy it at the initial price
• Retail pricing policy of predictable discounting

  Trains many retail consumers to wait for "the sale price"
• Everyday low price policy


  Aims to change the expectation that waiting is rewarded
• 30-day price protection


  Enables the customer to receive a credit for the difference between the regular and the sale price within 30 days of purchase
• Changing customer expectations encourages more people to buy at the offered price, reducing the need to discount later
• Tactical pricing


  • Reacting to past customer behaviour
• Strategic pricing


  • Acting to influence future customer behaviour
• In many B2B markets, buyers are ahead of sellers in thinking strategically about pricing
• Strategic sourcing


  Buyers' systematic and sophisticated policies for managing suppliers' expectations
• Sellers often lack the ability to unbundle services to meet just the specs in the RFP, which would enable them to charge individually for better terms and services
• Purchasing professionals


  Rewarded for cutting acquisition costs or establishing conditions that increase future leverage
• Typical sales professionals


  Rewarded simply for making the sale
• Pricing policy development


  Treating each request for a price exception as a request to create or change a policy that could be applied repeatedly in the future
• Creating pricing policies is the responsibility of management at a market level, not sales reps or local sales managers
• Putting a "no exceptions" stake in the ground

  Key to making pricing decisions that are profit enhancing
• Pricing policies cover more than just discounting, including how to pass along changes in raw materials costs and how to respond to low price offers from competitors
• Ideal pricing policies


  • Transparent, consistent, and enable companies to address pricing challenges proactively
• Analyzing pricing challenges and developing policies is an ongoing process, generally the responsibility of a pricing staff overseen by a group of managers
• Lack of policies for dealing with price objections is a challenge for both companies that sell directly and consumer goods manufacturers facing pressure from powerful retailers
• Ad hoc negotiation without pricing policies

  Sales reps communicate that the company makes price concessions, losing price integrity
• Buyers' defensive negotiation tactics

  Shift the negotiation to one where the buyer manages the seller's expectations, creating the impression of a highly competitive market
• Lack of price integrity can cause a company to lose market share as customers qualify second and third sources and solicit lower bids
• Lack of price integrity also makes it difficult for competitors to know the real price they are competing against
• Pricing policies that maintain price integrity

  Sales reps can confidently explain and hold firm on price increases, changing customer expectations
• Pricing policies armed with a "no exceptions" stance are an opportunity to change customer behaviour by changing their expectations
• Purchasing agent


  The sales rep knows that his company will back him in holding firm on the increase, even at the cost of a sale
• Explaining price increase to purchasing agent

  1. Confidently explains why all suppliers will face the same cost increases and so cannot maintain their same quality and service levels without passing it along

  2. Many purchasing agents will still refuse to accept the increase at that point unless the firm's price integrity has already been proven in the past

  3. Some may be bluffing, others may be prudently planning to check what other suppliers are doing before deciding to accept the increase, others may be operating under a mandate to keep total costs from increasing
• Price increase creates a problem for buyers

  It is the seed of an opportunity to change their behavior by changing their expectations
• Sales rep empowered with pre-approved value trade-offs and discount policies


  Can build credibility with the customer by offering win-win or win-not lose trade-offs
• Purchasing agent changing behaviour

  1. Would need to bring actual users into the decision process to evaluate trade-offs

  2. Will learn either that savings can come from working with this supplier rather than by threatening him, or that she already has the best deal available for her company

  3. As buyers come to trust the process, there is no need for the seller to maintain multiple suppliers simply to gain leverage in price negotiations
• Regaining the ability to capture value in negotiated pricing requires more than just training the sales force
• Value-based sales tactics need to be backed by a pricing process that is consistent with those same principles
• Unless a company is selling a unique product to each customer, pricing should not be driven by a series of requests for one-off price approvals from the sales force
• Changes in price should be driven by consistent policies designed to achieve the seller's market-level objectives
• When the policies are aligned with those objectives and clearly articulated for the sales force, the sales reps (as well as distributors and channel partners) are empowered and motivated to sell on value rather than on price