THE 4 EVILS OF MARGIN-BASED

PRICING STRATEGYinsights from

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Margin-based pricing – great in theory.

It predetermines profit for a specific product by setting a definitive goal for the

difference between price and cost.

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BUT…It creates a host of potential issues, because determining price involves

many more factors than just cost.

Margin-based pricing ignores these other variables.

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Margin-based pricing is easy.

But it weakens your results.

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Margin-based pricing has

4 MAJOR EVILS

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Evil Number One:

Emphasis on cost, not value

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Creates a disconnect between your price

and the value you create for the customer.

This puts your profits at risk.

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Your Plan of Attack Against Evil Number One:

Identify the value you bring to customers and

communicateit to them during pricing

discussions.

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Evil Number Two:

Assuming Your Customers Are Clones

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Are you treating your customers like

the exact same person? This creates three problems:1.Inability to create tailored value

propositions2.Sacrificed increased margins from

customers willing to pay more on value

3.Risk of customers who draw the line at a specific price point

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Your Plan of Attack Against Evil Number Two:

Segment by customer and related variables to

determine the most profitable price for every transaction.

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Evil Number Three:

Assumption Your Products Are Clones

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Are you lumping all of your product strategies together as well?

This margin-based evil fails to consider how customers need and use products

differently.

It also fails to consider slightly different costs to your company from product to product, costs you could be recouping

through your pricing strategy.

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Your Plan of Attack Against Evil Number Three:

Segment your products as narrowly as possible

and price them accordingly.

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BONUS TIP:

Further segment pricing down by a customer

group and product for the most profitable

pricing possible.

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Evil Number Four:

Relying on Volume for Profit Improvement

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If you focus only on volume, you’re completely ignoring customer and

product mix.

Volume isn’t your only lever for profit improvement.

This strategy sets you up to have to drop prices to reach your sales goals –

negatively impacting your overall profit goals.

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Your Plan of Attack Against Evil Number Four:

Use a business analytics tool to evaluate all five

profit levers (price, cost, customer mix shift,

product mix shift and volume) to build your

pricing strategy.

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YOUR STARTING POINT:

Find and leverage customer and product trends within your sales transaction data to determine pricing at a transactional level.

2020

KiniMetrix helps companies understand their sales transaction

data to build stronger pricing strategies.

Click here to view a video demo andsee how KiniMetrix can do this for you.

Find Actionable Insights in Your

Data