What is pricing management?
Businesses use pricing management to set prices, develop a pricing strategy, and improve that strategy over time. Companies set prices by looking at how the market changes, how much other companies charge, and their operating costs. They do this to find a price that shows how much customers think the product is worth. This should also be a number that makes money.
Several steps go into managing prices from beginning to end:
- Find out about market trends and customer tastes by looking at competitor prices, customer data, price elasticity, buying power, and other factors.
- To set basic prices for each item, compare the data to how your product fits into the market and stands out.
- Set appropriate prices for the product, your business’s growth plan, and how you plan to advertise it.
- Make a complete pricing plan that includes ways to lower prices, raise prices, or add new price levels for current products.
- Use tracking tools and customer feedback systems to keep an eye on how your prices are doing in real-time.
- As markets change and more information comes in, you should keep making changes.
A business can’t set the “right” price for its goods or services. The best price today won’t be the best in six months. So, setting and organizing prices is not a perfect science. That’s where managing prices comes in.
Synonyms
- Price management
- Pricing optimization and management
- Pricing management software
How Important It Is to Manage Prices
A lot of businesses use more than one way to set prices.
For example, SaaS companies use flat-rate, tiered, and prices based on how much they use their services. A freemium strategy is often used to get new customers. Most of the time, they offer some deal for a long-term subscription to keep them.
Stores and online brands use different kinds of competitive and differential prices. They have sales every so often. People who buy more of something pay less per unit. All of their things are priced the same at bigger stores.
When a business doesn’t price its goods correctly, many things can go wrong:
- Setting low prices will either cause you to lose money or make customers think your product is “less valuable.”
- Too high prices turn people away when they can’t see how much they’re getting for their money.
- New customers won’t buy from you if your prices are hard to understand.
- If you’re missing price tiers, it makes it much harder for people to buy from you.
When a business sets prices, pricing management tells them if they are the correct number and sets them in a way that customers think is fair and makes enough money to be profitable. These questions can only be answered in real time because the market changes.
Pricing management takes a lot of guessing from setting prices and how they are structured this way. Because it’s an iterative process, the goal is to find the best pricing solution for the business and its users.
Problems with Managing Prices
Competition and how people act as customers are constantly changing. Many things always affect prices, such as changing market conditions, changing customer tastes, and competitors raising prices.
Here are some of the most critical problems that come up when managing prices:
Understanding how markets work
Pricing management helps businesses figure out how to set prices for their goods in a constantly changing world. But it’s also hard because pricing choices based on data that changes quickly are prone to mistakes, especially if some data is wrong, stored in different places, or not in the correct order.
How a product is sold, how well it sells, and whether buyers think it’s sound are all affected by its price in a big way. The product, marketing, customer success, and sales teams use different systems. If there is even a tiny problem with data management or integration, prices could be different across the whole business.
Integration and management of data
It can be challenging for businesses to collect, organize, and make sense of the vast amounts of data they need to control prices effectively. The hardest part here is managing the data. Businesses must ensure that all their data sources are correctly linked and that only the right people can always see the correct data.
It might look like AI-powered analytics tools are the answer, but there’s more to it than that. Sixty-seven percent of executives say they don’t feel comfortable getting data from advanced analytics tools. They would instead make choices based on their gut feelings.
Mistakes Made by People
This is still how most executives make a lot of their high-level choices. One area that gets this method a lot is pricing (only 6% of software companies say they’ve done sophisticated pricing research). It’s also one of the most likely to make mistakes.
Intuition can be helpful sometimes, but when it comes to price, it can be harmful. It’s hard to say how pricing choices will change over time as market conditions and customer tastes change. One small mistake in price could cost the company thousands or even millions of dollars every month.
Getting rid of price discrimination
Pricing discrimination happens when businesses charge different amounts for the same goods or services based on the tastes and traits of the customers. It’s beneficial for getting into new markets, figuring out how much people can afford, and matching rivals’ prices. For instance, price breaks, student discounts, and discounts for first-time buyers are all types of price discrimination.
But it has two sides. Price discrimination can cause prices to be inconsistent; people do not have the same access to goods or services, and, most importantly, customers stop buying from the company. Instead of taking advantage of what customers want, businesses should use the information and ideas they responsibly get from them.
Margins of Profit
It can be hard to meet both customer standards and financial goals. Based on data from Latka, companies pay between $0.28 and $0.94 to make $1 in net new ARR.
There are many more costs than just getting new customers that come with having a business. For the sake of progress, early-stage businesses often don’t make money, but established businesses need to know their margins.
This is hard to do when setting prices, especially when there is a lot of competition. You can only run your business more efficiently to balance out the costs of selling at a lower price to meet demand. Some businesses will be forced to move because they can’t operate in a more environmentally friendly way.
Prices Around the World
When a business has customers from different countries, it can be hard to decide how to change prices to reflect the different levels of buying power.
B2C businesses are especially at risk. They can’t control the places where they do business, so they have to figure out how to set prices internationally carefully. If businesses don’t change their prices to fit their local market, they might not be able to compete with other businesses in the same area or get new customers.
Pricing That Responds
Businesses often make the mistake of relying too much on a competitive pricing strategy because they don’t do enough formal studies on prices. They don’t know how much their product is worth, so they often change their prices in response to what their competitors do. Customers will get confused, brand value will decrease, and you will miss the whole point of making and selling a unique product.
Pricing is closely linked to what makes a company valuable and its products unique. While competitor prices are an excellent place to start, keep in mind that they were at least partially set by differences in the market, customer wants, product features, and how the business runs itself. Each company will have its reasons for setting prices the way it does, and it needs to study that.
Why using pricing management software is a good idea
By putting all pricing and product information in one place, the right pricing software can solve problems with speed, data silos, data accuracy, and access to information.
Price optimization to show what customers are worth
The main benefit of pricing control software is that it helps you make more money. Businesses can change their prices to reflect better what customers are worth if they do it right. This raises the conversion rate and lowers the cost of getting a new customer. They will also be able to use advanced data tools that would be too expensive or time-consuming to set up independently.
Increasing operational efficiency to make more money
One of the hardest things about price optimization is when the best price for customers is also the worst for business. A key feature of pricing management software is process automation, which helps pricing teams look at data and decide prices more quickly and correctly.
Because of this, the company spends less time and money on price. Being more efficient in this area makes up for some (or all) loss if the ideal price is less than what the business can afford in the long run.
Streamlined management of list prices across all channels
When it comes to prices, consistency is just as important. B2B companies must work with channel sales partners and e-commerce brands selling on multiple shopping sites.
Right away, price differences between channels mean businesses lose money every time someone buys something from a channel with a price difference. In the long term, customers who notice the difference (and some will) will think your product is less valuable to them.
Syncing data across all revenue operations
Over and over again, RevOps teams say that data layers are their biggest problem. Numbers about sales and income, customer satisfaction, marketing success, and customer feedback for each product are used to set prices.
System integration is the only way to ensure the price team looks at everything they need, even if all the other teams talk to each other. Price control software works with CRM, CPQ, and other programs, so the sales team can see how the market reacts to prices from all sides.
Handle complicated pricing plans.
Companies like B2B manufacturing and SaaS with many different product configurations and pricing models can benefit from pricing management software that can store and handle all of these rules.
This also helps with compliance—they don’t need an audit because of a mistake made by someone inside the company. With pricing automation, it’s simple for them to decide which types of discounts and price tiers are available for different jobs in the company, such as sales reps. This way, everyone knows how the product is assembled and follows the rules.
It also helps businesses that offer subscription services, different price levels, or volume discounts figure out what kinds of people need what prices to keep them coming back.
Use more than one price level and currency.
Companies that offer different prices to customers in different countries can find it easy to use software. They don’t have to change prices by hand for each customer or currency when they automate pricing. All of that is built into the program.
Software, for instance, lets businesses quickly add a discount for customers who buy in bulk or charge an extra $X for each extra account member on top of the paramount price. If the customer is in Europe, the price changes to euros immediately. It changes to the local currency immediately when they pay.
Better Making Decisions About Prices
If the people in charge of DevOps don’t trust the facts they see, they might not settle on anything. At best, they’ll make ones that aren’t based on good information.
That trust is restored by software that combines data on customers, markets, sales and marketing, and products for price research. In this way, they can make intelligent choices that help them reach their business goals. This helps significantly in places with competition, like online shopping, where customer information changes quickly and new microtrends appear daily.
What Pricing Management Software Can Do
Connectivity with Other Platforms for Making Money
For accurate analytics and decision-making, pricing management software must be connected to systems that are already in use. For making accurate pricing choices, the most critical integrations are:
Planning for business resources (ERP)
- CRM stands for “customer relationship management.”
- Set up, price, and quote (CPQ)
- Software for managing revenue
There are times when these sites will automatically find the best prices. For instance, CPQ software often has a pricing engine that makes it simple to change prices as needed and lets the software do it instantly based on customer data or market trends.
Changing Prices
Most of the time, dynamic pricing is built into software for setting prices. Businesses change their prices as needed by using different amounts of dynamic pricing. Discounts for buying more or deals that end at a particular time are examples of introductory dynamic pricing. More advanced strategies, such as personalized and real-time pricing, use computers to change prices based on customer data and their engagement with the brand.
Different things should be taken into account by pricing control software, like
- Value of a customer over time
- Availability of the product
- Time of year
- Race to Win
- How much does it cost to sell
With these data points, the software can change prices automatically to match customers’ wants and make the most money.
Reports and data in real-time
Many types of data are built into the best pricing management software, which lets a business keep up with real-time changes in the market. They can use this information to see how customers react to different prices, what their rivals charge, and where their strategy may need to be changed.
They can also use automated analytics reports to learn more about how each product, customer group, or sales territory is doing, which helps them make better decisions about their general pricing strategy. It should be simple to sort, change, and share reports.
Analytics for Prediction
Software for managing prices should let DevOps teams make predictions based on past, present, and future data and studies of the competition. The ability to make up possible situations (like “What if we raised our price by 10%?”) and see what would happen before the price changes.
Automatic Price Alerts
To keep their prices affordable, RevOps leaders need to know how the market changes and how customers react. The best pricing management systems send out automatic alerts when certain conditions are met, such as when a competitor changes its price or a customer tells you they no longer see your product as valuable.
Rules for Changing Prices
Using automated price adjustment rules, companies can set parameters for different sales reps or organizational jobs linked to different types of discounts or tiers. In this way, they can ensure everyone follows the rules about deals and prices.
It also helps with compliance because sellers can’t charge more than what you’ve set in your system for each customer. Price changes don’t have to be done by hand; if a customer is eligible for a specific rate or tier, the software will change the price for them automatically.
APIs
It would be best to use API connections for all the integrations that aren’t local (like a CPQ) or built-in (like an ERP program from the same company). They simplify connecting your pricing software to other systems so that all your information stays up-to-date in real time.
