Most firms now recognise that pricing strategy and execution requires considerably more focus and effort than has historically been the case. But as with any initiative, the starting point should be a critical appraisal of how we are doing currently. Only by taking a candid and honest view of the current state of affairs do we have a basis for deciding what is required to make improvements and how to prioritise those efforts.
There is often a temptation to over engineer this aspect of the initial analysis. Certainly, there are advantages to a comprehensive research project but for many, a useful starting point and in fact all that may be required is a subjective self-assessment based on a series of questions, the answers to which will give you a strong steer as to how you are currently doing
Here are some simple questions that can help you determine the odds of whether your pricing strategy is as effective as it really could be;
Do your people actually have training and experience in pricing?
Do you just assume that pricing knowledge is acquired by osmosis on the job?
Do you have a structured price segmentation strategy based on price sensitivity analysis and differences in willingness to pay?
Do your fee earners take a one-size-fits-all approach?
Do you set prices according to the value your clients perceive and receive?
Do you just apply a fixed mark-up over unit costs?
Do you proactively target specific segments where you can command more profitable prices
Do you just take the business as it comes?
Do you conduct marketing research and competitive analysis to inform your pricing strategy?
Are you basing pricing decisions on gut-feel?
Do all your people actually know what your pricing strategy is and why?
Are they flying blind and making it up as they go along?
Do you have metrics in place to measure price performance?
Do you only think about pricing when your margins take a nosedive?
Do you have controls in place to ensure that your pricing strategies are being executed?
Can people just do whatever they think best?
Do you anticipate market changes and take proactive pricing actions?
Do you just react to whatever your competitors are doing?
Do you develop your pricing strategy as part of an overall marketing and business development strategy?
Is it more of an afterthought?
Are all aspects of the firms pricing strategy and execution tightly co-ordinated?
Do the various pricing components operate only in a loosely joined up way?
If you answered in the affirmative to the first question in each series, your odds go up. If you answered in the affirmative to the second question in each series, your odds go down. And, the more second-question affirmatives you have in total, the lower the odds that you have an effective pricing strategy.
It’s simple. It’s straightforward. In less than ten minutes, you can get a pretty good idea about whether or not your pricing strategy is effective, if indeed there is a pricing strategy. At a recent Validatum® Pricing Forum, in response to an anonymous live poll at the event, asking about participant firms’ pricing strategy, 39% answered ‘We don’t have a pricing strategy?’
Hmm, perhaps not the ideal answer?
This article was originally publisihed on March 17, 2018 on the Validatum website.
Validatum® was founded in 2008, at the outset of the global financial crisis. The company was created to help law firms and barristers establish intelligent and sophisticated pricing practices. These practices help to counteract the commercial pressures caused by regulatory changes, more diverse delivery models, better-informed consumers, the accessibility of web-based information and resources and the increasing application of disruptive technology. Managing Director Richard Burcher is a former New Zealand practicing lawyer and managing partner, with 35 years’ private practice experience and extensive postgraduate study in pricing.
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