Smart companies can price for recovery and growth says Prof. Colin Coulson-Thomas. Speaking at the Leicester Tigers Stadium the author of “Pricing for Profit” showed finance leaders how to use pricing to attract and retain customers.

According to Prof. Colin Coulson-Thomas pricing leaders and laggards adopt very different pricing strategies in a recession: “While laggards think short-term and try to buy business with discounts, leaders adopt a longer term perspective. By taking a ‘lifetime view’ and building more intimate and strategic relationships, they enable customers to achieve their purchasing objectives while sharing the benefits of lower sales and buying costs.”

Coulson-Thomas’ report “Pricing for Profit” examines how some companies are able to charge more than their competitors for essentially the same product and command premium prices for their offerings. He finds: “Pricing leaders adopt very different approaches from pricing laggards. For example, while laggards cut costs and standardize, leaders differentiate, bespoke, offer additional services and deliver more value.”

The Professor feels pricing deserves greater attention: “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. Obtaining and sustaining higher prices ought to be a top priority. Yet often boards agonize over selecting, developing and perfecting what is sold and then take quick pricing decisions based on guesswork, a mark up on costs, or inflation adjustment.”

So how should businesses set prices? Coulson-Thomas has some answers. He has persuaded 73 companies to reveal their pricing strategies, tactics and practices. The firms surveyed provided data on 127 factors that could affect pricing decisions. The findings set out in his report ‘Pricing for Profit’ suggest more effective pricing could boost the profitability of many companies.

Comparing the companies that are most successful at using pricing to achieve business objectives such as growing market share or improving profitability (the leaders) with the least successful (the laggards) revealed a stark contrast between the two groups. For example, leaders make more use of all nine tools and techniques examined.

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 members of the sales team play a more significant role. The most successful companies also rely upon evidence rather than hunch.”

The Professor warns “Marketing and sales should contribute to pricing as they ought to be close to customers. But left to themselves they may be tempted to ‘buy’ orders. Offering discounts may be regarded as a softer option than differentiating, tailoring and delivering extra value to justify a higher price. However, excessive discounting to ‘get the sale’ can reduce profitability.”

Coulson-Thomas reveals 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. When laggards look ahead it is often for defensive reasons, for example cutting price to hold onto market share.”

The cost drivers of leaders and laggards are very different. 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 more proactive and customer-focused approach to building their businesses. Increasing quality and delivering improved customer service allows them to 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 and the extent to which it is unique or special 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.”

There are many ways of differentiating other than by product or service according to Coulson-Thomas: “Companies can differentiate by their purpose, image, values, reputation, people, processes, pricing, relationships, approaches and methodologies. Support tools can be helpful in enabling people to both understand and articulate differentiators. People need to be able to explain what is special, unique or different.”

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, strategies and tactics as situations and circumstances change.”

_____________________________________

‘Pricing for Profit... the Critical Success Factors’ by Colin Coulson-Thomas can be obtained from Policy Publications via http://www.policypublications.com

Prof. Colin Coulson-Thomas, an active consultant and author of ‘Pricing for Profit’ has reviewed the processes and practices for winning business of over 100 companies, helped over 100 boards to improve board and/or corporate performance, and spoken at over 200 national, international and corporate conferences in some 40 countries. He can be contacted via http://www.adaptation.ltd.uk or http://www.coulson-thomas.com

Coulson-Thomas was speaking on “Pricing: How to do it well” at an ACCA members event held at the Stadium of the UK’s Leicester Tigers, the 2009 Guinness Premier Championship winners. The Association of Chartered Certified Accountants (ACCA) is the world’s largest and fastest-growing global professional accountancy body, with 296.000 trainees and 115,000 qualified members in 180 countries. ACCA helps the world’s employers attract, develop and retain the finance leaders of the future in all business sectors through nearly 80 bases worldwide.