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What is Price Realization, and How Does It Impact Your Bottom Line?
I bet you hear all kinds of pricing advice:
“Increase your prices by 2%.”
“Decrease your prices for your price-conscious markets.”
“Add value anywhere and everywhere to drive customer loyalty.”
Unfortunately, even the best pricing advice can’t work for every single one of your transactions.
That’s why price realization is so important.
Price realization measures actual vs. expected price achieved.
You can’t sell at target price every single time, but that’s the goal. (Or rather, it should be.)
This discrepancy is one metric you need to measure.
Price realization analysis allows you to:
Closely monitor sales teams and their selling tactics
Understand how customers respond to pricing changes
Leverage discounts strategically
5 Ways to Achieve
Profitable Price Realization
1. Make Discounts Strategic
Price concessions can destroy your profits. Discounts undermine
your entire pricing strategy. But you can’t give them up either. You’ve got to make them strategic.
How? Set a maximum threshold for discounts.
Hold your sales reps accountable for selling off target price.
Incentivize on price discipline. Train sales professionals to sell on value.
2. Align Price With Value
If you can’t change the customer’s mind about the price of a deal, it’s time to change the deal itself. What value element are your customers willing to give up?
They have to take a cut on the deal to get a cut on the price.
How to Drive Value-Based Pricing:
Remove value when decreasing price.
Segment customers by the deal components they value. Serve them accordingly.
When customers ask for a discount, ask what they’d be willing to give up.
3. Segment Prices with Mix Data
Earn the highest profit on every deal by customizing your prices for every deal.
Finding the perfect price for each transaction captures the most margin.
Unfortunately, that’s difficult to nail down. Different markets, customers, channels, and products all require different pricing strategies. When you start mixing and matching between them, things get even more complicated.
How to Build a Pricing Cheat Sheet:
Evaluate your transactions for the past year.
Segment your deals and customers into the smallest groups possible.
Build custom prices for each of these segments, further segmented by situation, if possible.
4. Increase Your Prices
Yes, it seems counter-intuitive. But you wouldn’t believe how many businesses underprice their products and services! You should increase prices on a regular basis.
It seems scary, but as long as you continue to drive value and sell on that value, your customers will understand.