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When to Ignore Pricing Best Practices

If your organization has never done much (or really anything) in the way of price optimization, the prospect of incorporating all the current best practices into your organization can be daunting. When you hear about the great results that “rock star” companies are able to achieve, you might even be tempted to adopt a “why bother?” attitude. After all, it seems unlikely that your firm will ever be one of those on the leading edge establishing best practices.

Don’t give up before you’ve begun!

Our experience has shown that organizations exactly like yours are often the ones that experience the biggest gains in the least amount of time. While we would love to see you adopt all the most current best practices, it’s really not necessary to achieve some dramatic improvements in your margins. Just a few key changes can work wonders.

Did you ever watch the “The Biggest Loser”? Whatever you think about whether the show was helpful or harmful for the participants, it illustrates our point about the opportunity for improvements pretty well. This reality show was on TV for many years, and it featured overweight contestants competing to lose weight over the course of a season’s worth of episodes. The way the show was set up, the people who lost the biggest percentage of their body weight had the best chance of winning.

You didn’t have to watch very many episodes to understand that someone who weighed 400 lbs when a season began had a much better chance of winning than someone who weighed 180 lbs. That’s because if you are significantly overweight, making just a small change in your diet and exercise routine can result in pretty significant weight loss. But if you are closer to the “ideal” weight, you’re going to have to work really hard to shed even a pound or two.

If you weigh 400 lbs, you might be able to lose 20 percent of your body weight – 80 pounds – just by adding a daily walk to your routine and cutting back on desserts for a couple months. And that weight loss is going to have a pretty significant impact on how you feel. Yes, you’ll still have a plenty of room for improvement, but those small changes can make a big difference. You might wish that you could get down to 150 lbs immediately, but making incremental gains over time is a much more achievable – and probably better – approach.

By contrast, if you weigh 180 pounds, dropping 20 percent of your weight – 36 pounds – is probably going to require some more intense exercise and a stricter diet. And anyone who has ever tried to diet can tell you that the last 10 pounds before your goal are usually the hardest.

Pricing improvements work in the same way. If your company is in bad shape, making a 20 percent improvement is going to be fairly easy. By contrast, if you already have a good segmentation model and are calculating your price elasticity to maximize profits, making enough tweaks to get a 20 percent improvement may not even be possible.

If you’re at one of those companies with plenty of opportunities for pricing improvement, we have some suggestions for how to start. “Better” Practices for Pricing Improvement addresses your situation. It offers suggestions for ways to start making progress towards better pricing under less-than-ideal circumstances.

You should also check out Identifying & Capturing Profitable “Quick Wins.” It details 15 techniques for improving prices right away without a lot of time or effort.

Finally, we also recommend The Essence of Strategic Pricing. It covers some of the most essential concepts in pricing and the mindset that you need to excel. If you start thinking like the best pricing people in the industry, you’ll find that it’s just a matter of time before the results follow.

While the best practices might be out of reach today, they might not be so unattainable a few years from now — if you start making small changes today.

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