A Complete Guide to Managing

Your Pricing Strategy:

Insights and strategies
brought to you by

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A 1% improvement in price results

in an average boost of 10% in profits.
Successful pricing strategy is much more than choosing the perfect prices for your
products and services.
Regular and well-executed price increases help keep companies profitable.
Unfortunately, many businesses are leaving money on the table, because they dont
know how much to raise prices or lack an understanding of how their customers will
react.
As popular research from McKinsey shows, a price increase of as little as one percent
can result in a ten percent increase in profits. Thats research your company cant
afford to ignore.
Using insights from your own sales transaction data paired with focused strategies,
your team can implement regular, well-planned price increases without risking
customer loss or adverse market effects. We can show you the way.
In this ebook our pricing experts with decades of experience outline four steps to a
robust pricing strategy that can quickly and effectively boost your profits.
Read on to learn more about breaking out of a commodity mindset, avoiding the
common pitfalls of price increase planning, ignoring buyers lies, and building
effective margin management habits.

STEP ONE:
BREAK AWAY FROM A COMMODITY MINDSET
Businesses often limit themselves by believing theyre selling commodities or commoditized
products and services. This dangerous misperception ranges from high-end branded products
clear across to service companies. As a result, customers get great pricing, but these companies
end up giving away substantial amounts of margin.
One of the most obvious signs commoditization is affecting your business comes from your sales
staff. Beware when you hear people saying:
I dont set the price. The market sets the price.
This is a commodity business. Our customers can easily
buy this stuff from any number of suppliers.
Of course, some businesses really do operate in markets where competitors have essentially the
same product. But this neglects the most important fact that, particularly in a B2B environment,
you are offering so much more than just your product including services like delivery, customer
service, short-lead time order fulfillment, etc. and therefore, theres almost always something
to differentiate what you sell from the competition.
If you didnt have some sort of value-add that the other players in your industry cant match, you
wouldnt have started your business in the first place or stayed in business this long.
Once these beliefs become entrenched, youve got a serious challenge on your hands. Your sales
staff can get away with what we call lazy selling without being held accountable for devaluing
what you offer. It becomes increasingly difficult to earn the support of your sales staff on price
increases and, in turn, to get customers to accept them. The damage to your profitability from
these issues will extend long into the future.
So how do you escape the commodity mindset trap?
The following three principles have worked well at a large number of best-in-class companies.
They transfer to any business willing to train its sales force accordingly.
1. Dont drop the price without also changing the offering.
Your sales team needs to let your customers know that the new price is reflective of the value
of the new offering. Something must be exchanged in order to get the lower price payment
terms, delivery terms, lead-time, or first-look on a subsequent sale. They dont get anything for
free.
2. Add value at every customer turn.
A common element of successful price increases is the focus of value instead of material costs.
When communicating new prices to customers, justify on terms of added value. This isnt
something you can create out of thin air. You have to make promises and then consistently
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deliver on them. If you guarantee overnight delivery, your product has to be in customers hands
the next day. If you express dedication to fast customer service, you cant keep them waiting on
hold for hours on end when they call.
3. Ensure all internal teams understand your value points.
Too many sales representatives dont fully understand the spectrum of value that is delivered to
their customers, and therefore dont understand why what they sell is worth its set price.
This lack of understanding comes from the fact that value for customers is often created by
a host of departments across your enterprise there are different value elements provided
not only by your sales organization, but also often by your operations and finance teams (e.g.,
special packaging or more lenient payment terms).
The challenge here is to actually gather this information for the sales staff. Every part of your
organization that communicates directly with a customer can provide this critical intelligence. It
takes a concerted, ongoing effort across sales, support, operations, and finance to detail what
people like about what you provide.
One of our clients holds his team accountable for creating and communicating product value
by putting his top three value propositions in writing and carrying the list into every internal
meeting. By framing almost every discussion in terms of these value propositions, he makes
sure his team is not only aware of them but is actively focusing on them every day. This
ensures his customers find value no matter who they connect with. We recommend having your
sales team implement this strategy as well.
4. Deliver options, not ultimatums.
Customers love to think that they are driving the sales process. Giving your customers a good/
better/best choice helps them feel like they are getting a bargain, even while you protect your
margins. These differentiated price points define a distinct level of value, which help prevent the
customer from taking a single offer and demanding a bare-bones price to get the deal.
These four best practices have been extensively researched, developed, refined, and
employed by successful businesses for more than 40 years. Use them, and youll be better
prepared to keep your company focused on delivering something with a higher level of value,
rather than a commodity that goes for the lowest price.

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BI MAKES DATA VISUAL. KINIMETRIX MAKES DATA PROFITABLE.

STEP TWO:
AVOID COMMON PRICE INCREASE MISTAKES
Most companies plan their price increases in Q4 to prepare for the upcoming year. During this
time, sales organizations invest significant time and effort on price increase planning.
Unfortunately, by the same time next year, many companies are unable to
achieve most, if any, of the increases they planned so carefully.
Why do companies so often fail to execute on price increase strategies?
Weve found most failures could be prevented by avoiding three common pitfalls:
1. Adopting a peanut-butter approach
Businesses must execute price increases at a granular level: customer by customer and product by
product. Yet many businesses plan price increases at a higher level, applying the same increases
to broad groups of customers or products. This peanut butter approach inevitably results in
increases that are too high for some customers and products and too low for others. Ultimately,
this strategy will create a windfall for your customers, who will simply accept the increases that are
too low and push back on those that are too high.
2. Starting too late
Many businesses conduct price increase planning as part of the budgeting process. Chances
are, however, your customers are going through their own budgeting process at the same time
as you are. If you delay planning until budgeting season, you run the risk of not being prepared
to communicate your planned price increases to your customers until they have completed their
budgets based on their own assumptions about how much your prices will increase. Once those
assumptions are built in to a customers budget, getting an increase that exceeds the assumptions
becomes significantly more difficult. Even if you do not have all the factors you need to complete
the planning process such as final forecasted input costs consider beginning the process
before budgeting season so you can start communicating expectations around increases to your
customers before they begin their own budgeting cycles.
3. Failure to hold sales reps accountable
A surprising number of companies fail to track how successful sales reps are at achieving planned
increases; fewer still actually tie pricing success to incentives. If sales reps are not held accountable
for achieving the increases they plan, they will quickly come to view planning as a mere paper
process an administrative exercise to be completed as quickly as possible and promptly
forgotten. As a result, the planned increases will become unrealistic (and typically very optimistic).
On the other hand, as a recent study by Bain & Company found, incorporating pricing measures
into sales incentives can drive significant pricing improvement. By measuring and rewarding
performance against a plan, you can encourage careful planning and a focus on execution.
Price increase planning is a resource-intensive activity, but it can play a crucial role in
helping you achieve pricing excellence. Avoid these common mistakes to make your price
increase efforts more productive and successful.
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BI MAKES DATA VISUAL. KINIMETRIX MAKES DATA PROFITABLE.

STEP THREE:
STOP BELIEVING BUYER BALONEY
Lets get one thing straight:
Buyers are liars.
Maybe its the purchasing tactics that an organization uses to drive a bargain.
Maybe its simply what an individual does to look good to the boss.
Whatever the reason, purchasing at many businesses can push the boundaries of truth well past
the level of absurdity.
Buyer lies you need to watch out for:
You guys are the highest priced player in the market.
Most buyers dont realize this lie is completely transparent. Companies have a good idea what their
competitors charge. If youre the highest priced player, its most likely because you offer a premium
product, or youve chosen that approach as part of your overall sales strategy. Remarkably, this
is a common lie even in markets in which two companies control 80 to 90 percent of the market,
with little, if any, price differentiation. Keep competitor pricing on hand for this buyer lie.
Switching costs nothing.
Your customer wants you to think you need them far more than they need you. But you buy
products and services too. You know full well that switching vendors always carries some level
of cost, risk, and pain. Thats the real reason behind the threat. Its much easier to bluster than
it is to actually make a change. Advise your sales team to resist intimidation and instead remind
customers the of costs of switching providers while highlighting your unique value propositions.
You are 10% too high to get this deal.
This is the purchasing equivalent of a car salesman saying, Tell me what you can afford, and Ill
see what I can do. Give in, and youll never regain control over the sales process. Purchasers will
go to absurd lengths to make this lie stickright down to fake quotes from competitors. Have your
sales team clearly explain the reason behind your pricing and the value behind your products and
services. Follow our tips to selling on value below to help your team justify your pricing.
Youre selling a commodity. Its exactly the same as everybody elses.
Every company has a responsibility to its customers to add value to its products and services.
Examples of value differentiation include the freight and delivery expertise, brand recognition,
technical know-how, or customer service. You most likely won over your customers with value in
the first place. Dont let them forget this when they start putting a lie like this on the table to try
and get a lower price. Train your sales team to highlight the differences of your product or service
and convince customers you havent become a commodity.

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BI MAKES DATA VISUAL. KINIMETRIX MAKES DATA PROFITABLE.

So, what do you do when a customer

tries to pull one over you?
Its time to pull up a seat at the negotiation table.
Not sure where to start? Over the last century, tens if not hundreds of books have been
written about effective negotiation tactics. In the best-selling book Getting to Yes, Roger Fisher and
William L. Ury offer five key propositions for a principled negotiation:

A. Separate the people from the problem.

B. Focus on interests, not positions.
C. Invent options for mutual gain.
D. Insist on using objective criteria.
E. Know your BATNA (Best Alternative To Negotiated Agreement).

In addition to the tried and tested techniques offered by Fisher and Ury and the always critical
building of two-way trusted relationships with your buyers, plan to step into buyer negotiations
armed with the right information.
5 Effective Techniques for Cutting through Customer Baloney:
1. Acknowledge that your customers lie.
Buyers do indeed lie from time to time. Even if theyre good people. Even if theyre your friends.
Its part of the process and is nothing personal.
2. Leverage your data.
With the right database tools and analytics systems, you can regain the higher ground. When
a customer claims that he should get a discount because he always pay on time, your data will
immediately inform you of the truth. It could alert you that the customer is actually habitually 15
days late with his payments.
3. Drive the conversation in the right direction.
When a customer throws out something that sounds outrageous, ask questions that force them
to produce quality answers. It will rapidly become clear if theyre telling the truth.
4. Call their bluff.
A modest investment in online research and competitor monitoring tools can allow your team
to uncover publicly-available information on competitor offerings and pricing. Theres not much
room for argument when youre clearly the better-informed party.
5. Focus on value.
Provide a valuable, differentiated offering with excellent service to back it up, and focus on
maintaining or growing the gap between you and your competitors. With a sharp focus on staying
ahead, it will be much easier to turn around buyer negotiations.
Make these elements part of your basic sales training to give your staff that extra edge to drive a
more honest conversation and efficient sales cycle.
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BI MAKES DATA VISUAL. KINIMETRIX MAKES DATA PROFITABLE.

STEP FOUR:
BUILD EFFECTIVE MARGIN MANAGEMENT HABITS
A 2013 Ernst & Young survey determined 75 percent of executives believe it has become harder
to sustain margins.
Despite this pressure, some companies continue to successfully grow their margins. What do
executives at these companies do that sets them apart?
Through almost two decades of experience working with finance organizations of all sizes in widely
differing industries, weve found a set of common habits the most successful margin managers
employ on a regular basis.
Almost all managers do some of these consistently and most of them at least occasionally, but the
most effective managers evolve these processes over time until they become fully embedded in
their workflows and practices.
1. Measure, measure, measure.
Effective managers must have a way to identify the factors driving margins. To succeed, they need
a consistent set of six or more standard, powerful views that can pinpoint the sources of margin
change. One sign your measurement system may not be sufficiently robust is if you use plugs to
explain gaps in margin, such as attributing changes that cannot be explained through price, cost,
or other drivers to catch-all categories such as mix shift.
2. Use tools to perform standard, core analysis quickly.
If it takes you days to run a standard basket of analysis, youre not being effective. Your teams
function is not to produce analysis; it is to produce insight, which requires digging beneath the
analysis. Use robust analytical tools to produce your core analysis quickly, and keep your people
free to dig into those analysis to find ways to improve the business.
3. Build cross-functional participation around margin improvement.
You need contributions from everyone in your business to improve margins, including sales,
marketing, operations, product management, and product development. Different functions
contribute in different ways, however, so excluding any function from the process deprives you of
potential levers you can use to improve margins. Make sure everyone is engaged and accountable
for the pieces of margin improvement within their control, and hold regular meetings (e.g.,
monthly) with these constituencies to review progress.
4. Refresh analysis in a timely manner.
Business is moving faster today than ever before; analysis you performed on a monthly basis
in the past are now needed weekly or even daily. With the right tools, you can refresh analysis
quickly and with minimal effort and focus your time on identifying changes and trends to correct
problems and capture opportunities faster than your customers or competition.
5. Disseminate the right information to the right people at the right time.
Not everyone in your organization needs or wants the same information, and too much data
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obscures what is important. Because every function affects margins in different ways, the drivers
each needs to manage are different if the sales force can only control price and volume,
providing metrics on cost or currency mix shift can distract them.
On the other hand, more detailed metrics around which customers are driving price changes can
enable them to manage price more effectively. Tailoring the information to various audiences will
keep each focused and enable them to take quick action on areas of opportunity.
6. Be bold and complete in your management of margins.
Weak organizations often throw up their hands and claim drivers of margin variation like product
and customer mix are out of their control. Their frustration often stems from an inability to
measure the impact of those drivers rather than an inability to manage them. Challenge yourself
and your team to measure all drivers of margin and find ways to manage them. While these can
be harder to attack than more straightforward drivers of margin such as cost, they often have
greater upside for the simple reason they have been given less attention in the past.
7. Reward success.
Incentives drive behavior, and margin management is no different. Each individual and function
can contribute in different ways, and these contributions are reflected in unique drivers of
margin. Tying rewards to these drivers ensures appropriate focus. For example, if engineering
is responsible for finding the most cost-efficient mixtures of inputs for finished products, this
translates to specific margin management metrics, which in turn can drive incentives and MBOs.
With a little practice, dedication, and focus, every business can implement these habits and learn
to manage gross margins more effectively.

A Complete Guide to Pricing Strategy: Your #1 Lever for Growth

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BI MAKES DATA VISUAL. KINIMETRIX MAKES DATA PROFITABLE.

ABOUT THE KINI GROUP

Founded in 2002, The Kini Group is a pioneer in gross margin improvement through advanced
business analytics. The companys proprietary suite of business analytics frameworks, offered
through the KiniMetrix cloud-based SaaS solution, provides businesses with visibility into:
1. Key commericial metrics
2. Volume improvement opportunities
3. Areas of pricing improvement
4. Potential margin improvement
KiniMetrix TrueView Basic
Identify opportunties for sales program improvement, analyze your profits
to find additional margin growth, and reduce expensive customer churn.
Learn more.
KiniMetrix TrueView Plus
Determine the true impact of price increases, understand the impact of mix
on your bottom line, and wash out the effect of principled drivers of gross
margin variation. Learn more.
KiniMetrix Optimum Performance
Establish sound pricing discipline, and create real-time alerts for transactions
that affect your bottom line. Learn more.
KiniMetrix helps you identify critical issues and get answers to essential business questions. With
regular delivery of actionable insights, you can make better business decisions. And you can focus
on what your team does best.