Common Pricing Myths and Misunderstandings
The world of pricing is filled with myths and misunderstandings. Some of these misunderstandings are simply the result of old rules from a different time being applied to the here-and-now. Other myths got their start as opinions, but have since blossomed into full-fledged beliefs. In any case, it's in your best interests to learn the truth --- your margins depend on it.
The Top 10 Margin-Killing Myths About B2B Pricing
Every B2B company would like to maximize their margins, improve their profit-performance, and ultimately, increase their shareholder value. What’s preventing some companies from leveraging the power of pricing to improve their performance? In our experience, we’ve found that what often separates those who succeed from those who struggle is a series of closely-held myths about pricing in B2B.
Margin-Killing Myth: The Market Controls the Price
This myth alone has done more damage and cratered more markets than all of the other margin-killing myths combined. When executives and managers hold this belief, their margins are virtually guaranteed to suffer. For many executives and managers, this mistaken belief is playing a role in their decisions and preventing them from fully-utilizing the most powerful profit-lever available.
Exploring the Myth That "Pricing Needs to Be Simple" in Order to Be Effective
Regardless of how it happens, the reality is that companies too often connect the dots between their underlying pricing model and ease-of-execution in the field. The result is fairly predictable: These companies adopt extremely rudimentary pricing models that are easy to understand and execute, but that ultimately allow millions of margin-dollars to just slip through their fingers.
The Myth About Inefficient Pricing Processes Being the Biggest Problem
It’s easy to understand why many manufacturers and distributors default to process improvement when attempting to capture their pricing opportunity. What no one likes to talk about, however, is the fact that process improvement is only really powerful when the object of the process in question is fundamentally sound to begin with.
How the Revenue/Volume Myth Can Hurt Your Margins in a Downturn
In a market condition like this, it’s not uncommon to find sales teams falling prey to the myth that just securing more revenue-dollars or unit-volumes will solve the company’s problems. As a result, the team’s entire definition of “going too far” is altered --- kicking off an unnecessary margin-meltdown that can cost manufacturers and distributors millions.
Over-Discounting IS Optimal---Just Not for Your Company
Executives of all stripes, but especially finance executives have strong beliefs that sales reps over-discount. Recent research shows why not only is that expected, but why the conventional remedy, compensating sales on margin instead of volume, is not enough.