Your competitive pricing environment is changing around you. Are your prices keeping up with market conditions? When it comes to maintaining your prices, you have 4 choices: Ignore, react, respond, and pre-act. Ignoring is used too often as the default price maintenance methodology. Reacting is using the ignoring strategy, until the consequences are so bad you have to act. Responding means monitoring the marketplace and making pricing corrections as conditions change. Pre-acting means changing a price to see how your competitors and your customers react. Here are those pricing strategies in more detail, and their rewards and consequences:
- Ignore - This is the easiest by far to do. Just release a product, set a price, and never revisit it. Ignoring costs nothing to implement, but the opportunity costs can be huge. This could possibly (not likely though) be optimal for custom products for a single customer, but unfortunately this is used too often as the default price maintenance methodology.
- React - Many businesses use the ignore strategy right up to the point where they get knocked upside the head with a hammer. This hammer reveals itself as rapidly decreasing sales, customer defections, and missed forecasts. After the hammer strikes, the company then says, "maybe our pricing isn't right" and attempts to take action. They react. At least they realized they have a problem even though it was way too late.
- Respond - Instead of waiting for the bad consequences of poor pricing to remind them to update them, some companies monitor what is going on in the market place and makes pricing corrections as conditions in the market change. For example, when a major competitor lowers a price, companies with the ability to respond detect the price change and then act deliberately. Many even anticipate these changes and can respond from a pre-determined playbook. Only a small percentage of businesses are set up to respond.
- Pre-act - Only the elite-pricing organizations are set up to pre-act. Imagine changing a price for the sole reason to see how your competitors and your customers react? Then doing it again? After you understand their behaviors, you can make pricing decisions with reasonable certainty about how the market will respond. The elite-pricing organizations that are capable of this have the monitoring capabilities from "respond" in place to make this happen.
Here is your roadmap: You are likely in the "ignore" or "react" stage (only because most companies are). Now it's time to think about moving to the "respond" stage. What are you monitoring? Is it systematic? How do you use it? Create some playbooks so that when you see certain competitive behaviors you know what to do. After you have responding under control, move on to "pre-acting." Be the company that drives the market pricing because you understand the dynamics better than your competitors.
Pricing is powerful when used diligently. Be powerful!