Why you should be developing a comprehensive pricing strategy across your product or service portfolio.
Over time, you may have put together a portfolio of offerings, be it a range of products or a range of services. In the early days, when there were fewer products or services in your range, you found it easier to price them.
At this point, you are likely asking yourself several questions:
- Do we continue pricing each product or service on the same basis that we have used historically?
- If different products or services face varying inflationary pressures, should we be applying a uniform price increase rate across the entire portfolio?
- Have we applied any specific strategic rationale to the way that each product or service in the portfolio has been priced? In other words, are we pricing specific products or services on the basis of information at our disposal such as Channel influences, Geographic influences, Consumer buying behaviour and Competitive influences.
In our experience, many businesses do not have a specific pricing strategy when it comes to portfolio pricing approaches, be it across product SKUs or a range of services. Pricing may rely on historic precedents, competitor pressure, cost-plus accounting or simply intuition. Moreover, opportunities to use a product or service portfolio strategically to gain a competitive advantage are not considered. We prefer to approach the challenge at two different levels, namely a data-driven level and a strategy crafting level.
The data-driven approach to this pricing challenge
The data driven approach starts off by using data provided by the client. For instance, in the case of pricing across a portfolio of SKUs, we can take sales data across a variety of channels at SKU level and map it against pricing data as well as competitor and geographical data to offer guidance on where and when price is a key determinant of sales movement.
This approach relies on the principle of “letting the data do the talking.” We have used it most successfully in the FMCG arena where packaged consumer goods are sold through a variety of retail channels with a variety of outlets, prices, locations and competitors.
This approach is helpful as it comes with no preconceptions. It is helpful in providing useful guidance in decision-making environments where there is pressure to lower margins across an entire product portfolio. It helps to make the case for where price is a key contributor to sales, and where it is not. This enables management to identify channel and location combinations where the need to cut prices may not be key to achieving increased sales volumes. It helps to prevent emotionally-based pricing decisions that could be harmful to the business.
The strategic thinking approach to this pricing challenge
Once we have the first step completed, you should start to think about crafting strategy to address the challenge. You should understand why each product or service has been priced the way it has. Often, there will be some form of cost-plus pricing involved that has then been affected by competitive pricing pressure.
You should then try to understand the roles that each part of the portfolio plays in differentiating the brand. Is it about uniqueness, prestige, completing the product / service line? Consider some of these issues for instance:
- Where are customers most aware of your pricing and where are they not? This could reduce perceptions of unfair pricing whilst providing you with opportunities to avoid unnecessarily low pricing.
- Are you working across more than one brand in your portfolio? This means that products and services need to reflect the appropriate brand positioning. It also provides an opportunity to manage competitor threats by using your brand and product portfolio strategically to compete on the basis that suits you best.
- Where specifically is competition most intense? Is it price-based or does it take other forms? Respond appropriately.
- Are you dealing with one customer segment or multiple customer segments? Be most aware of whether price is critical to each specific segment and respond appropriately.
- What sort of purchasing frequency, values, volumes and margins are related to each product or service. This is a risk-mitigation issue and an opportunity development question.
If you approach the pricing question from these perspective, you are more likely to ask the right questions and potentially uncover opportunities and risks that you previously unaware of.
About the author
Alan Ohannessian started WisdomInc in 1999. WisdomInc focuses on Pricing Strategy, Brand Strategy and Analytics. He has consulted to over 70 global and local brands across 15 industries during this time.
Prior to this, he started a Customer Relationship Management consultancy within the Ogilvy Group in the mid-1990s and worked within the Ogilvy Group over a 5-year period. He was also lecturing Marketing Strategy, Consumer Behaviour and Retail Marketing during the early 1990s at the University of the Witwatersrand, Johannesburg.
He has a B Comm. (Hons) from the University of the Witwatersrand in Manufacturing Strategy where he focused on how to mass customise products at competitive prices. He also has a Master of Commerce degree from the University of the Witwatersrand which focused on distribution channel strategy and logistics.