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You’ve Been Asked to Build a Pricing Model, Now What?

Before you get started, take the time to understand the overall objectives of your pricing initiative, as “building the model” is just a tactic to achieve the objectives. In many companies I’ve worked with, the pricing initiative is trying to achieve a handful of objectives, all of which should influence the broader solution approach, including whether the pricing model, alone, is the solution or not.

Here are a few examples of what your company may be trying to achieve with a new pricing model:

  • Improve margins and revenues via pricing
  • Deliver consistent prices to the market (it’s a customer-experience issue)
  • Deliver prices more quickly to improve quote turn-around time, which is often a big factor in win rates
  • Update prices more frequently to adjust to volatile market conditions
  • Remove human subjectivity and/or human error from the pricing process
  • Reduce the number of price exception requests flowing through the business
  • Set more fine-grained pricing along a dimension like SKU or customer type
  • Align pricing across SKUs, unit-of-measures, customer sizes and order sizes
  • Align pricing across channels, or along the supply chain (important for manufacturers who sell both through distribution and directly to end customers)

Spend the time to clarify which of the objectives above you are trying to achieve with your model, and assess whether the model is even the best course of action. You might build a great model that doesn’t address the true concerns which drove someone to ask you, “please fix our pricing” in the first place.

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