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Butterfly Effect: Big Impacts from Tiny Pricing Tweaks

Everyone who has ever watched or read a weather forecast understands that it’s an extremely inexact science. In fact, if you and a friend are each getting a weather forecast from a different app on your phone, the predictions might be wildly different. In some cases, you might get very different predictions if you are using the same app but are just standing in different places. In my own house, we’ve gotten different forecasts when one person was upstairs and the other was downstairs.

Depending on your mood, incidents like this can be amusing or even mildly irritating. With how far scientific knowledge has progressed, it seems like we should be able to know with certainty whether or not it’s going to rain.

But meteorologists are less surprised when forecasts aren’t quite right. They understand that the weather results from millions of different factors interacting in complex ways. And making a small change to just one factor can have effects that ripple throughout the system.

In fact, chaos theorists have suggested that a butterfly flapping its wings in Brazil could lead to a tornado halfway around the world.

The “Butterfly Effect,” as this idea is known, can come into play in the world of business as well.

While it’s not quite as complex as the earth’s weather patterns, a business involves an intricate interplay of people, products, messages, and money. Making a very small change in one area can have a huge impact on other aspects of the business.

This is particularly true of pricing.

You’re probably already well aware that even a 1% improvement in the prices you are getting for your products can have a double-digit impact on margins. But other small adjustments in your pricing structure and strategy can also lead to huge gains for the organization. Here are four resources that explain how:

  • Closing Costly Margin Leaks details some of the most common reasons why B2B companies don’t achieve the bottom line results they hoped to see. It outlines a diagnostic process for helping you determine which minor tweaks might lead to improvements, and it offers advice for dealing with the organizational dynamics that often come into play.
  • Improving Your Price Lists suggests a number of minor enhancements that can make even the most basic price list more effective. It highlights best practices and discusses how price lists can be an helpful part of your larger pricing strategy.
  • Dealing with Price Exceptions discusses strategies for minimizing price exceptions and maximizing the number of deals that flow through normal processes. It shows you how to make small changes that will enable you to better balance risk, response, profits, and throughput.
  • Using Pricing Analysis to Drive More Growth will help you ask the right questions. It demonstrates how to apply analytic techniques to every aspect of the pricing process and drive higher margins as a result.

If you spend some time looking back over your life, you can probably spot some examples of the butterfly effect in action. If you hadn’t had a particular teacher, maybe you wouldn’t have chosen the profession you did. If you hadn’t agreed to go out with friends on a particular night, maybe you wouldn’t have met your spouse. If you hadn’t changed lanes to avoid a piece of debris on the highway, maybe you would have hit the deer that was crossing the road.

In the same way that these small decisions had an outsized impact on your life, simple pricing tweaks can make a big difference in your company. By making small, positive changes in your pricing practices, you can set your organization on a course to avoiding potential trouble and experiencing greater success.

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