Companies learn how to price more effectively

Most companies could benefit from more effective pricing, according to Prof. Colin Coulson-Thomas. Speaking at a conference on pricing at the Gordon Institute of Business Science he revealed that many businesses are missing opportunities to use pricing to improve profitability and build more rewarding relationships with customers.

The Professor from the University of Lincoln feels pricing deserves greater attention “Obtaining and sustaining higher prices ought to be a top priority of entrepreneurs. Yet often they agonize over perfecting what is sold and then take quick pricing decisions based largely on guesswork.”

Coulson-Thomas examines why it is that some companies can command premium prices for their offerings. He explains: “Pricing decisions impact directly upon sales revenues and profitability. Charge too much and orders are lost, while charging too little erodes margins and may give the impression that offerings are of low quality.” His report ‘Pricing for Profit’* suggests more effective pricing could boost corporate profitability.

Comparing the companies that are most successful at using pricing to achieve business objectives (the leaders) with the least successful (the laggards) Coulson-Thomas finds: “Leaders understand the strategic importance of pricing and are more attuned to factors such as perceived value that affect price sensitivity. They involve a wider range of departments in pricing decisions and rely upon evidence rather than hunch.”

The Professor who also facilitated the one day event finds that: “Leaders attempt to sell on value as opposed to price. They are more likely to segment a market-place and take a long-term view, for example using ‘penetration pricing’ to enter a new market.”

According to Coulson-Thomas, “Leaders are five times more likely to increase volume to achieve economies of scale. They are also more realistic when allocating costs and more likely to understand the direct and indirect costs attributable to a particular product or service.”

Overall, according to Coulson-Thomas: “Leaders adopt a very different approach to building their businesses. They focus on each market segment and differentiate their offerings. By increasing quality and delivering improved customer service they build sales volume, reduce unit costs and become more competitive.”

The Professor points out that: “Leaders keep their pricing structures simple and transparent. Increasing an offering’s economic value enables them to price for value. Differentiated, tailored and exclusive offerings attract a premium. Leaders strive to add value to their core offering, develop a reputation for service and use pricing to build closer relationships with key customers.”

Coulson-Thomas concludes: “Overall, leaders put greater effort into pricing. They use a wider range of sources of price information. They keep their finger on the pulse of customer, user and industry opinion, and review their approaches as circumstances change.”

*‘Pricing for Profit… the Critical Success Factors’ by Colin Coulson-Thomas can be obtained from Policy Publications. To order the report: email: colinct@tiscali.co.uk or visit http://www.policypublications.com or www.ntwkfirm.com/bookshop/

The one day conference ‘The Art and Science of Pricing for Increased Profit’ was held at the Johannesburg campus of the Gordon Institute of Business Science of the University of Pretoria. Dr Colin Coulson-Thomas, Professor of Direction and Leadership at the University of Lincoln is an active consultant and author of ‘Pricing for Profit’, a report on the critical success factors for effective pricing. He can be contacted by email: colinct@tiscali.co.uk or via http://www.adaptation.ltd.uk

Also speaking at the GIBS conference were Lumkile Mondi, Chief Economist of the Industrial Development Corporation and a member of the President’s Economic Advisory Council, Dawie Roodt, Chief Economist of the Efficient Group, Bryan McLachlan, Head of Transactional and Investment Products at Nedbank, Kobus Smit, Marketing Executive at Parmalat Africa, and Mike Holland, a part-time faculty member at GIBS and Director of PriceMetrics