What is Pricing Strategy?
One of the recent pricing quotes we posted on LinkedIn said, “Pricing strategy requires more direction than simply maximizing profits.” A reader suggested this would be a “great topic to expand on.” Here goes.
High Level Pricing Strategy
Pricing strategy must follow and complement the corporate strategy. A CEO who says our strategy is to “maximize profit” is like a head football coach who says our strategy is to “win the game.” Certainly, that’s the goal, but it isn’t a plan on how to achieve that goal.
Both the CEO and the coach need to create a plan. A plan to maximize profit or a plan to win the game. These plans are not extremely detailed because as Mike Tyson said, “Everyone has a plan until they get punched in the mouth.” Details change in the middle of execution. What shouldn’t change is the intent.
In Dan and Chip Heath’s book Made to Stick, they talk about how in the military they follow what’s called commander’s intent. The commander doesn’t give the details on how to do something, but they give a goal and high level plan. This is what we expect from our CEO.
CEOs could have strategic plans that include:
- Increase margin
- Penetrate the medical market segment
- Focus on selling more to our current customers
- Implement a subscription business
- Grow internationally
Day-To-Day Activities Drive the Pricing Strategy
So what can you do as a pricing person? You should be implementing pricing activities to help with these high level strategic plans. And as you can see, the activities would be different for each of these strategies.
If you are in pricing and want to be considered more strategic, make sure you know the company’s strategy. Then, create and implement activities to help drive those strategies. When opportunities to talk to executives arise, discuss their plans and what you are doing to help achieve them.
If you don’t drive new pricing initiatives based on the executive’s strategy, then you are simply executing tactical pricing. Somebody has to do it, but that job’s not for me. If you want to have an IMPACT in your company, become strategic.
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.