The Seven Deadly Sins of Pricing

Pricing is crucial to business success. It reflects the value you create and the story you want to sell.

Pricing drives business revenue and profit, determines the future and acceptability of the product in the market, and quite literally translates into, “How much is your creativity and effort worth?” 

Meanwhile, to a potential customer, it boils down to whether the product is worth their time and money. They make assumptions about what they buy based on what they pay.

Despite this, why do so many companies get it wrong?

Maybe we can provide a time-tested answer to this conundrum. The Seven Deadly Sins not only makes for a good movie plot but also provides a good framework for pricing mistakes you may be committing and how to stop. 

Lust

"We want it all—and we want it now!"

If management cannot prioritize whether they want pricing to deliver more sales or more profit, they will most likely end up with nothing.

This needs to be addressed in their pricing strategy. Be clear about the short-term and long-term goals. Identify and bridge the gap between pricing and profit vs. pricing and sales. 

Gluttony

A simple price rule for a product, such as “5% below competitor X,” becomes excessively complex over time due to the inevitable addition of ad-hoc fixes.

In no time, the rule can transform into: “5% below competitor X, but no more than 10% above competitor Y, unless it would then be cheaper than the base version or sell below 15% margin, unless we are within 5% of the bonus target….”

Ultimately, no one can say which rule drives prices and if it economically makes sense. With the one-size-fits-all equation, the very lack of customization can lead to a competitive disadvantage.

Greed

Managers assume prices are inelastic and customers will not react to a price increase. In the real world, however, a demand reaction to a price increase will almost always occur.

If done poorly, it can negatively impact customers and make them more vigilant or suspicious. It can sometimes even snowball into a social media mess, tarnishing brand value. Understanding this is critical to success.

Sloth

Strategic pricing is a business's biggest advantage and key differentiator. On the other hand, a lazy pricing strategy can be a silent killer of new products.

It has been observed in many forms: simplistic price rules like cost-plus, undifferentiated price increases, and high discounts to avoid negotiation. In all of these cases, it pays to go the extra mile. The effort to build and implement a clear pricing strategy can help companies extract the total value of their products. 

Wrath

Price wars can be psychologically exhausting. In almost every scenario, the first move is based on price, and every retaliation is a price cut that eventually transforms into a fully blown price war.

Instead of staying calm when a competitor underbids you and preparing a targeted and measured response, you’re committing a deadly pricing sin.

The result is often a total erosion of market profits. That’s why it’s a good idea to consider other options, intelligently analyze the situation, and assess the consequences of such an immediate change on product value, market, and customer segments.

These considerations might stop the war before it even begins. 

Envy

Marketing, sometimes without forethought, assumes their products are better than their competitors and that they can charge a premium when it is not advisable.

We can all agree that reframing a price can influence the perceived value of a product. While people are largely irrational with their buying, businesses cannot have the liberty of being so. Charging a premium requires the right combination of research, timing, opportunity, and strategy.

Pride

Change is inevitable. Pricing leaders often struggle with scattered data across their organization without a single point of truth.

Technological innovations are enabling leaders to have better control over their pricing strategies. If a pricing manager prefers to assume that their pricing strategy is already optimal and doesn’t leverage the potential and capabilities of innovative Revenue Growth Management (RGM) solutions like Buynomics, they might fall behind.

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