pricing … why is so hard to get it right?

17 02 2014

price-tagThe Pain of pricing

I recently worked with a group of artists to put on an exhibition … everything was going smoothly, the venue was sorted, the guests list finalised, all were in agreement on how the event would run … then it came to agreeing a pricing structure …and the wheels fell off…

Why?

Businesses must generate income to survive … but pricing is rarely the ‘sexy’ leg of strategy. We enjoy creating ideas about customer values, developing new products, and creating high performing teams … but pouring over figures to agree a pricing structure  … not quite so much fun!

For smaller businesses and consulting, pricing is also personal … what am I really worth, how can I put a value my own intellectual property? In larger businesses … it can highlight the gaps in knowledge around consumers and competitors leading to some awkward moments.

But if the wrong pricing strategy is in place … the consequences can be disastrous and far reaching.  The fiasco at JC Penney in 2013 was a great example of how the wrong pricing strategy can drive away both customers and staff and cost the CEO his job.

So how do you ensure you get the right pricing strategy in place?

1 . Articulate your value proposition

From concept development to agreeing the pricing strategy … the value proposition may have shifted.  Re-articulate the value proposition and then define the message that the price needs to convey.

Is it …

“this is a premium product delivering a premium service”

or …

“this is a hard working product delivering operational efficiency”

2. Really understand your cost structure

Map all the elements that contribute to the cost of the sale, not just the production or delivery costs, but indirect costs such as rebates, sales commissions, administration and development costs.   What profit margin are you aiming for?  What is your break-even point?

3. Unpack the purchasing chain

How many purchasing decisions are there in the chain?  You may have got the retail price spot on but if there is not enough margin for the distributor … then the product is going to sit at the back of the store.  Again map the process and really understand how each decision to purchase will be made … climb inside the head of your consumers!

4. Plot your competitors

Plot not only the obvious competitors, but look at all products or services that are competing for a share of the same budget. Understand their pricing strategies and value propositions.

5. Future Proof

Constantly adjusting prices is time consuming and frustrates staff and customers, so identify the factors that could impact pricing over the next 12 months … exchange rates, raw material costs, or fuel prices etc.  What can you do to reduce the impact of these factors and have you built in enough buffers to weather a few storms?

6. Test the market

Pricing strategies are difficult to reverse … so test the market, speak to trusted distributors and current customers.  Trialling not only checks assumptions but also builds internal confidence.  This confidence will ensure the buy-in and support from the sales team … so critical to any pricing strategy.

By taking a structured approach to pricing, much of the emotion is stripped out and the risks reduced.   Pricing may never be sexy, but getting it right can be the difference between business success and failure.


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Categories : Strategic Planning

Customer Centricity … now there’s an idea!

6 02 2014

happy customerI have not met a CEO in the last 12 months who has not had customer centricity as one of her main strategic initiatives.   It is a great idea … putting the customer at the centre of the organisation … it should result in winning new business, retaining more clients and ultimately improving results.  So the real issue is …  why hasn’t the customer always been at the centre of the business?

Here are some of the reasons that I have heard:

“as the business grew, became more complex, we spent more time on dealing with shareholder demands, and developing our people …  the customer became less of a priority”

“tough economic times meant that we had to pour our energy into cutting costs and reducing risk”

“our value chain has become so complex, it now hard to define exactly who our customers really are?”

“if we do not focus on new product development … we will get left behind”

These are all very valid reasons … HOWEVER, they are not going to disappear just because a new strategic initiative has been launched.

So how do you  build a customer centric organisation that is going to stay customer centric?

To start …  there needs to be a clear understanding of why the customer is no longer at the core of your business … what factors have shifted your focus from the customer? You now have a platform to build the tactics that address conflicting demands on the business yet still place the customer at it’s centre.  It is the difference between going on a crash diet … or deciding to change your lifestyle!

Now turn your attention to what your customer really needs … has this been an intuitive guess in the past, where are they right now, what is keeping them awake at night?

Most companies attempt to segment their customer base … but the danger is that they create convenient groups that have a nice heading … is it time to rethink how customers are defined?  Who do you really need to keep happy?

Identify where customer centricity is alive and well.  Companies are excellent and finding fault in their organisation … but often weak at identifying excellence. There are always pockets of customer centricity … where are these in your organisation, what can be learnt from them, how can they be scaled?

From here you can move to the nitty gritty of aligning systems and processes and importantly … building the right culture.  Not easy … but it can be done with the confidence that a solid foundation has been built to deliver a long-term solution rather than a quick fix.


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Categories : Strategic Planning

Strategic Creep

25 01 2014

medscalenovelty_doorstop_doorstopper_ds104One of the questions that I frequently ask during a strategic planning session is “what business are you really in?” It is a simple question but one that is often hard to answer.  There is a sudden realisation that they are now in several businesses, the core mission has multiplied to become several missions and the organisation is now involved in projects and services that are not part of the core strategy … how did this happen?

One of the reasons is that as companies grow, managers have more autonomy, the pressure to deliver the numbers increases and that spirit of entrepreneurship that has been fostered,  gives rise to strategic creep.

To see strategic creep in action … your local pharmacist is often a great example.   I often think that I might have stumbled in to a gift shop, a card shop, even a shoe shop … the till points are overflowing with nougat, novelty door stops, felt book marks and the list goes on!  It is only when you wade through to the back of the store you find their core business!

If you take a close look at your own business, you might realise a bit of consulting revenue is cropping up here and there,  perhaps a client is now paying for some training or you are representing additional product lines on behalf of a supplier.

But does it matter if the activities are bringing in profitable revenue?  The answer is probably yes.   No-one wants to turn down revenue or quash entrepreneurial spirit but  strategic creep can be diluting investment in the core business, damaging the brand and distracting the team from delivering on the vision.  So what can you do?

  1. Track it … obvious but you need to be aware of what non-core business activities are happening in the organisation.   Are they on brand and are they adding real value to your business and your customers?
  2. Ring fence it … if it is not core business and not aligned to the vision, but the revenue can not be lost … acknowledge this and ring fence it.  In my own business … I call these revenue streams ‘essential petty cash revenue’ I will not invest any further time in developing the revenue stream but I will complete the project and move on.
  3. Learn from it … the creep could stem from a specific demand from the market … perhaps indicating a growing trend or change in your operating environment.  Is it time to re-evaluate your strategy and incorporate the creep into core?
  4. Kill it … tough decisions may be needed to nip these activities in the bud.  It is always painful to turn down revenue but a short term gain could result in creating longer term problems and putting the business at risk.

Strategic creep can be a powerful tool to force fresh thinking in the organisation  so don’t ignore it, learn from it and always know the answer to “what business you are really in?”


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Categories : Strategic Planning

Why do we dread the annual strategic planning session?

27 08 2013

NewsletterHead3_0The annual strategic planning session  is one of the first dates to go in to the company year planner. Two valuable days of senior management time, that takes a lot of preparation, and costs a lot of money.  It is often the only opportunity we get to step back from the business and indulge in some real creative thinking  and take our business to the next level … so why do we  dread it?

The feedback reports …  the sessions usually kick-off with divisional reports from the different business units.  By the third report you are losing the will to live and you are seriously thinking of drowning yourself in the urn of lukewarm coffee.  It is almost the same set of reports that you heard at last year’s session, at the last month’s exco meeting and the last board meeting.  By the time everyone has presented, there is not a creative thought left in the room.  No one wants to ask questions or give feedback … this will just prolong the agony.

They are not really strategic … so often the sessions become a planning and problem solving session.  The debate gets stuck in to operational details; and old problems get raised again and again.  In one organisation that I worked with, there was an annual bet between two of the directors on how long it would take the FD to raise the issue of company cars!  The level and style of debate in strategic planning sessions is often a good indication of whether senior management have lost sight of their strategic roles and become too operational in their outlook.

Nothing ever changes … the ideas have finally started to flow, themes have been identified and a plan is emerging, but time runs out.  It is agreed that team members  will take responsibility of picking up on the different themes and finalising the plans … but it takes a couple of weeks to receive the typed up versions of the scribbled flip chart sheets, and by then it is difficult to remember exactly what the important issues were.  So a few half-hearted telecoms take place but everyone is now distracted with their latest project and so the ideas fade away until next year.

So what can we do?

  • Keep the feedback sessions tightly controlled and look for creative ways to distribute the information in advance … for example create a podcast, short video, or run the presentations using a Pecha Kucha or an Ignite format
  • Set clear and strategic objectives for the session and constantly check in with these objectives so the session remains on track.  Develop a set of rules for the session that everyone signs up to.
  • Get creative … develop ‘what if’ questions to help shift thinking, develop activities that stimulate diverse ideas and create a safe environment where there is no such thing as a silly idea
  • Keep it visual … make sure that all the ideas are recorded during the session either through a dedicated scribe or using a visual mapping tool such as thinkpod, participlan or even post it notes.  This way all participants can take digital photographs of the sheets at the session and time is not wasted typing up lengthy reports.
  • Finish the plan … ideally the timing of each element of the session should be planned carefully with the majority of the time dedicated to the idea generation, and planning stages.  However, if you still run out of time, then set up a follow up session to complete it.  If the plan is not considered a high enough priority to warrant another meeting … it is a strong indication that its chances of implementation are low.
  • Communicate the plan … for the rest of the organisation the senior management strategic planning sessions is one of life’s great mysteries.  Make sure that time is allocated to share the plans with the implementation teams and there opportunities  are created to get feedback and create buy-in.
  • Track the plan … the plan needs to become a living document that is constantly updated and adapted to changing circumstances.  It must not become just another report that is added to you ‘read later’ pile

Strategic planning events is opportunity to  flex our creative and strategic muscles … we need to grab this opportunity rather than waste it listening to boring presentations and practicing our doodling skills!


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Categories : Implementation, Meetings, Strategic Planning

Turning strategic plans into action

1 09 2012

Strategic PlanningTurning strategic plans into action

We have all been there … walked out of a two strategic planning session all fired up. Brilliant ideas were generated, different business units working together to create plans that could give a real competitive edge. We truly believed that this year it will be different … these plans will fundamentally change the way we do business, lift business performance, and inspire our teams … but six months down the track we have slipped back into our old ways and not much has changed … why?

Writing Up the Plan
Writing up the plan … all to often the reams of flip chart sheets remain rolled up in the corner of the CEO’s office waiting to be written up. There are so may hieroglyphics it is impossible for anyone not at the session to grasp the flow so it may be several weeks before the session notes are written up and circulated. By this time the momentum has been lost, and the nuances that made it so appealing forgotten.
… the solution
• Use your cell phones … get everyone to take shots of the sheets that relate to them and ask them to write up the notes

• Executive PA … allocate the role to a senior administrator, and use programmes such a mindmanager or SimpleMind to manage the content

• External facilitator … make it someone else’s problem, an external facilitator will collate all the notes and create a summary report of the session usually within 72 hours of the session

The Silent Majority
Were all the voices really heard … did everyone have the opportunity to give their input and voice their ideas and concerns … was the session dominated by the usual suspects? Unless there is authentic buy-in from all members of the team … progress is unlikely to be made.
… the solution
• The process … use a participative process such as visual mapping to ensure everyone is involved
• Voting … at key points ask people to vote on particular issues so there is clear consensus

The Detail
Strategic planning sessions are often high-energy right brain sessions, great ideas and insights but there is never enough time to create a realistic and tested implementation plan. Sweeping assumptions are made that then create problems at implementation stage and create roadblocks that are difficult to remove
… the solution
• Set up the dates for the implementation planning sessions well in advance … the final list of participants may change depending on the outcome of the initial session. Typically there will be 4 to 5 new initiatives to map out … ensure that you schedule enough time for each one.

Business as usual
The day (s) out of the office has already created a backlog of +200 emails, meetings have stacked up, a few fires need to be stamped out and suddenly the plans seem like a luxury we can no longer afford.
… the solution
• Be realistic … all too often people to commit to unrealistic deadlines during the initial session, build in some slack to the plans
• Harness your resources … involving more junior members of your team takes management but can be highly motivating for them and brings a fresh approach.

The Next Layer
Strategic planning meetings are often steeped in mystery with executive teams disappearing to game lodges and five star resorts … ‘what do they really do there?’ is a frequent question. Staff can feel frustrated that they are not able to add their ideas and insights.
… the solution
• Ideally, prior to the strategic planning session, staff should have the opportunity to share their ideas, either through departmental sessions, or using an intranet site, wiki etc
• Feedback … at the session agree what needs to be communicated to staff and the appropriate forum. Ensure that this is done within one month of the session

Shifting Sands
All business environments can be volatile, a tender opportunity arises that now necessitates a shift of focus, a senior team player is poached, a key account is lost or gained and suddenly the plans seem irrelevant and difficult to quickly adapt to environment. The old way seems the safest option
…the solution
• Regroup … there were several hundred valuable man hours invested in the initial plan … but suddenly it seems indulgent to invest a few hours to update and adapt to the new development

The strategic planning session is one of the most important events for an organisation but to be highly effective it needs to form part of a process that supports full implementation.


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Categories : Implementation, Strategic Planning


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