Question: What is the best way to measure the effect of price increase projects? Price development, margin development? High-level reporting or very detailed? How do you isolate mix effects? A few questions that can be interesting. Peter
Answer: Peter, several different answers or additional questions:
What do you expect to happen?
What type of business are you in?
What are the goals of the business?
What do you predict might happen?
Number 1. What do you expect to happen? You obviously put together a price increase for a reason. Be sure to measure that. It’s likely an increase in ASP or margin. These are high-level metrics that are easy to track.
Number 2. What type of business are you in? Is it a subscription business? A traditional business? B2B or B2C? Direct sales force or distribution channel? Each of these will help inform number 4 below.
Number 3. What are the goals of the business? Are you trying to grow revenue and profitability? New customer acquisition? Sell more to current customers? Improve brand perception? Stop selling a type of product? Shift your distribution channel? These all inform the next question.
Number 4. What do you predict might happen? Here you want to brainstorm on all of the possible effects of the price increase. For example, maybe the rate of winning new customers goes down. Maybe competitors win more business. Maybe our product mix changes. Maybe more people subscribers consider churning. Maybe usage decreases. The effects may be market segment specific. You might try to predict and model how much of an impact your price increase has on each of these and then compare the actuals with the predictions. The level of detail depends on the level of your prediction.
You also asked about isolating the effects of price vs. other marketing mix variables. The only real method is to only change one thing at a time. This isn’t always feasible. Let’s say you have a massive brand push at the same time you want to change the price. It’s not possible to know which had the biggest effect unless you find a way to test it. One possibility is to only implement the price change in one or a few regions and compare the results with the regions where the price change didn’t happen.
The more you learn about the effects of this price increase, the more informed you will be about whether or not to do it again. Also, as you watch these impacts, you will be better able to predict the effects of other types of price changes.
Price changes are a fantastic time to learn about the impacts of price on your business. If you or your competitors never change price, then you have no way to learn. Take advantage of it.
Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. He has a PhD from U.C. Berkeley and an MBA from Santa Clara University, plus 25+ years pricing experience. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.