5 TIPS TO AVOID PRICE &
MARGIN EROSION
Tip Sheet
If intuition, guesswork and
emotion currently drive your pricing
decisions, it’s time to stop what you’re
doing and take a hard look at your
pricing strategy. Subjective, inconsistent pricing
means you’re probably leaving money on the table
today, and undermining your future sales.
When faced with customer demands for lower prices
and limited understanding of your competition,
an organization that lacks a disciplined pricing
strategy is an easy pushover. The results? Excessive
discounting and attempts at competitive matching that
accelerate pricing and margin erosion.
Many factors contribute to price erosion, including
shorter product lifecycles, budget constraints and
increasingly sophisticated buyers. But your lack
of pricing discipline shouldn’t be one of those
contributing factors.
Implementing a sound pricing strategy prepares
your company to deliver up-to-date pricing guidance
to sales reps wherever they might be at the time of
contract negotiations. This combination of strategy
and technology sets the stage for a more disciplined,
consistent and profitable sales organization.
Follow these five pricing strategy tactics to help your
sales team minimize price and margin erosion:
1 Segment customers by willingness to pay: Many
sales organizations sell product lines with good/
better/best variations in quality and value. When
a price-sensitive customer seems unwilling to pay
more for the higher-value options, sales reps often
feel pressure to offer all three options at similar
price points to win the business. This practice
creates a significant risk for margin erosion.
When sales reps enter negotiations with a good
indication of a prospect’s willingness to pay,
using customer analytics and segmentation they’re
able to improve sales offers and avoid driving
down prices on higher-end products. With a
highly price-driven customer, for instance, the best
sales strategy is to offer only lower-end products,
instead of a full range of value propositions. This
strategy makes managing prices easier during the
negotiations and helps sales organizations control
margin erosion for higher-end products.
2 Set accurate floor, target and stretch prices: When
most of your deals need to go through your
exception process for approval, that constant
review might seem like an indication that you
have pricing under control. In fact, however,
too many price approvals via exception usually
indicate the lack of a disciplined pricing strategy.
Meanwhile, the sheer volume of exceptions tends
to obscure those deals that genuinely require
scrutiny and slows the sales process. While reps
wait for quote approval, prospects may lose
interest or opt for a competitor’s products and
services.
To reduce these exceptions, take time up front
to establish accurate floor, target and stretch
prices for each product and customer segment.
This practice offers several benefits: reducing
discounting, accelerating approval for sales reps,
and allowing sales and pricing leaders to employ
the exception process more effectively. Building
on a consistent, objective pricing framework also
tends to produce logical price bands that help
slow the rate of price erosion while protecting
market share.
5 TIPS TO AVOID PRICE &
MARGIN EROSION
Tip Sheet
About PROS
PROS uses Big Data to help its customers sell more effectively,
revealing the opportunities most likely to close, offers most
likely to sell and prices most likely to win. The company’s
software and methodology draw on 27 years of data science
experience in more than 30 industries, optimizing sales,
pricing, quoting, rebates and revenue management. The new
PROS Step cloud solution uses Microsoft Azure’s scalable,
enterprise-grade platform, allowing customers to eliminate
large capital expenditures and reduce IT support while
maintaining privacy and security. For more information, visit
www.pros.com and www.step.pros.com.
3 Reduce variance in pricing
bands: If your company offers
tiered, good/better/best product lines,
tight pricing bands help protect prices on
the higher-value or premium options. To get these
tight bands, you need the ability to determine
when a price is truly too low, and then implement
floor, target and stretch prices for each tier in the
product line. When sales reps then use customer
segmentation to selectively offer these options,
it reduces variance in price bands, shrinking
exposure risk and slowing price erosion.
4 Introduce new products to target value-driven
customers: When you combine a strong pricing
strategy and customer segmentation, your
company also gains the necessary insights to
develop new products that target your highest-
value prospects. These offers might be brand
new, or come from bundling services and other
added value with existing products. And when
launching brand-new products, the ability to
initially target value-driven customers with the
highest willingness to pay is a great way to
extend the product’s probable lifecycle and slow
margin erosion.
5 Use pricing software to adapt to changing
market conditions: Pricing software combines
data from your sales transaction history with a
variety of market intelligence sources. Based
on that information, the software offers pricing
optimization and the ability to quickly adjust your
pricing to reflect changing conditions. It also
delivers objective pricing guidance and more
accurate forecasts of price changes over the life
of a product.
Overall, pricing software helps to organize
and implement the discipline and automation
needed to slow margin erosion. These software
solutions offer agility and predictive insights that
allow sales and pricing leaders to determine
which tactics and strategies are most effective in
preserving profits.
Without a consistent strategy, out-of-control pricing
and rampant discounting are certain to accelerate
margin and price erosion at your organization. But if
you’re tired of under-valuing your own products and
being out-negotiated by sophisticated buyers, you
have the ability to reverse this trend. Use these five
tips to develop a sound pricing strategy, supported by
technology that delivers accurate, timely guidance to
sales leaders and reps in the field.
Are you ready to make better pricing decisions and
leverage customer segmentation? Download our free
e-book, 5 Best Practices For Analyzing Pricing Data.
5 Tips to Avoid Price & Margin Erosion
Without a consistent strategy, out-of-control pricing and rampant discounting are certain to accelerate margin and price erosion at your organization. But if you’re tired of under-valuing your own products and being out-negotiated by sophisticated buyers, you have the ability to reverse this trend.
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