Price strategy is often under leveraged in private businesses
Ask any mergers & acquisition professional what’s the fastest path to building your company valuation and their answer will always include a reference to pricing strategy – be able to show that your company has some ability to periodically raise prices and minimize attrition.
Too often in privately held companies the leadership mindset is; “our market is too competitive and we can’t raise prices”, “we’re not a big enough player to be able to set prices so we have to follow others”, “we’re afraid we’ll lose customers if we try to raise prices”.
These might be true, but are you asking the right questions internally of your team to determine if even some small aspect of your business could initiate a price strategy that helps improve company profitability. Sit with your key managers and ask these questions:
- When is the last time we looked at the competitive landscape to understand who in our market is setting the pricing? Who is the player that seems to adjust prices first and others then follow?
- Are we looking too broadly at the pricing of our competitors in our market or are we effectively looking at pricing by market segment, customer type and by our individual products or services? In other words, are we getting granular enough in understanding the pricing in our market or are we making broad assumptions?
- Are we leveraging our customer buying behavior (by using our internal data of their purchase history) to see if we have packages or bundles they are buying? Is our pricing set by individual pieces of these packages are do we price to reflect the value they are deriving from the package?
- Are we leveraging our customer buying behavior to see any cyclicality or surge buying behavior? Are we charging the same price all year long when we might be able to raise prices during the times of the year when surges occur?
- When is the last time we evaluated the “next best alternative” that a customer has to our offering – in other words, do we truly know what other products or services our customer is comparing us to and do we understand where they view us as equal, lesser or better than that alternative – does our price strategy accurately reflect this view?
- Are we clear on the top 3-5 criteria our customer is using in selecting a product or service of our type? Every customer goes through a decision check list in their minds (or formally) before selecting your product or service. Are we clear on what their list is and how we stack up and are we pricing ourselves accordingly?
Setting pricing strategy begins with asking the right questions. And it’s well worth your time and that of your team to sit and think tank these questions. Help your financials today and show your future acquirer that you are smart about your pricing and that you have some degree of smart pricing that they could benefit from if they acquirer your business. This could help be the difference between an ok future exit or a euphoric one.
