Pricing in 2013: What to expect
Of the four ‘P’s of marketing – product, place, promotion and pricing – pricing will be the one that rises to the top in 2013. If you missed it, flip back to my wrap up of 2012’s pricing lessons. If not, forge ahead to find out what’s in store for pricing in 2013.
Demand for products and services in the US and European economics has ground to a halt (although there is evidence that the US is starting to rebound).
This is rubbing off on the Chinese economy, where many of those products and services are manufactured. This in turn, will affect the Australian economy, whose companies either power or provide raw materials for the factories in China that make those products and services.
Australian companies will be forced to take a good, hard look at their pricing in 2013, not only because it is shaping up to be a tough year, but because price optimisation is more profitable than business process re-engineering, cost reduction initiatives or selling more products.
Challenges and opportunities will be found throughout the value chain:
1. The war between pricing and procurement will continue
For many years now, companies have been more concerned about the price they pay for products and services than the price they get for their own products and services. Anecdotal evidence from companies who attend my pricing workshops suggest 80%-100% of companies have a purchasing or procurement department, but less than 20% of companies have a department dedicated to pricing.
As a starting point, pricing, sales and marketing professionals need to spend time with their own procurement departments, understanding their mindset and the tools that they use, as a step towards developing counter-procurement tools and strategies.
2. Pricing opportunities will be found in big data projects
The days of across-the-board price increases are gone. The opportunities lie at a segment, sub-segment and increasingly at the individual customer level. And the only way companies are going to identify these opportunities is by mining through megabytes and megabytes of data, looking for the meaningful rather than the mean, and finding differences rather than similarities.
3. The subscription and service economy
More and more products that were previously sold on a transactional basis are now being sold on a relationship basis utilising a subscription (sell once, renew many) pricing model. This includes DVD rentals (Quickflix, Netflix), car rentals (Flexicar), music (Spotify) and numerous technology products adopting the Software as a Service (SaaS) model. Even razor blades are being sold via subscription by DollarShaveClub.com.
Expensive capital goods are also being sold as services. Rolls Royce, Pratt & Whitney and the like have been “renting” aircraft engines to airlines for many years. Xerox, Cannon and others “rent” photocopiers to corporate clients. Orica no longer sells explosives, but rather “rock removal services”.
The benefits of selling services are numerous: services are difficult to commoditise, margins are higher, retention of ownership, and the client spends OpEx rather than CapEx. Expect this trend to continue, and proliferate, in 2013.
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