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What Changes Impact Your Bottom Line? Hint: There Is More To Pricing Than Meets the Eye

By Denise Harrison

Strategic Planning Expert

Strategic Planning Expert

In their well-researched book, entitled The Price Advantage the authors (Baker, Marn, and Zawada) use the following statistics to highlight the importance of pricing:

Operating Profit Improvement

Per 1% Improvement in:

 DAH chart

A 1% increase in price achieves an 11% improvement in operating profit.  This statistic should make us take some time to think about our pricing policies.  Yes, it is difficult to raise price, but are there some segments of your business where a price increase is warranted?  Are their some customers who value certain features of your product/service more than others?  Are there ways to capitalize on the differences?  Usually a price increase is not as simple as a 1% increase across the board, but thinking through who your customers are and what benefits they accrue by using your products helps determine if there are certain niches of your business where you can increase your margins.

Customer segmentation is an important part of a strategic planning process, whether this is the first time through strategic planning or a revision of your current plan.  We often find that companies lock in a segmentation causing them to miss emerging segments within their core market.  As an industry matures, customers become more fragmented and your company’s ability to anticipate and understand these changes will enable you to better refine the products and services that you provide and help you better understand the value from the customer’s point of view.  A better understanding of the value a customer receives will help you price your products and service accordingly.  Remembering the power that a 1% increase has on operating profit should help your team to focus on the market niches that truly value your product and price the product accordingly.

During your next strategic planning update, look at your segmentation – discuss different approaches to your current segmentation – are there any premium niches that require special services or product features?  How can you meet these requirements?  What can you do to better understand your customers’ business models so that you can truly understand how you can help them gain market share or lower cost?  A better understanding of your customers’ business allows you to meet their requirements with the right product at the right price.

For other ways to enhance your strategic planning process please watch our video:  Why Isn’t My Strategic Planning Working?  This video will give you tips for enhancing the strategic thinking during your next strategic plan update.

Please contact me if you have additional questions: harrison@cssp.com.

Denise Harrison is a consultant for the Center for Simplified Strategic Planning, Inc.  She can be reached at  harrison@cssp.com.

© Copyright 2014 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.