Viv Wilson

What would 8% do for your bottom line?

As a pricing strategist, I’m constantly amazed to discover how much profit businesses are leaking out the door.

Profit is king right?

So why do so many businesses fail to manage the one thing that has the most impact on their bottom line? Price.

According to Bain & Co, ‘companies can earn an 8% increase in operating profit for every 1% of improvement in realised price’

Source: Bain Brief article ‘Clearing the Roadblocks to Better B2B Pricing’ Dec 2014 http://www.bain.com/publications/articles/clearing-the-roadblocks-to-better-b2b-pricing.aspx

According to the research, that’s roughly twice the benefit of a 1% increase in market share or reduction in operating expenses.

A 1% realised improvement in price could lift your profit by 8%.

I get it, pricing is complicated and more than just a numbers’ game. It gets poked and pulled from all departments including marketing, operations, finance, sales…

Good pricing practice is as much about price setting as it is price getting – which means being clear on your value equation especially through the eyes of your customers, knowing how you can improve their lives, leveraging your differences, and creating meaningful connections that engage both head and heart – and communicating all that to your customers.

If your organisation is not clear on both the emotional and rationalised value you provide to your customers, you are left playing pricing roulette with your competitors. They drop the price, you follow suit, and before long, you get dragged into the slow death spiral of consistent discounting and price dealing.

One of the biggest culprits is the focus put on delivering top-line sales. After all, sales is the closest metric to hand and can be managed in real-time right? So, when the numbers are coming in slower than we would like or below target, we pull the discount lever in the hope we can drive more sales! Then everyone breathes a sigh of relief as the top-line number is met. (Ahhhhh crisis averted for another month).

That is until we arrive a few months down the track, as the accumulative effect of discounts start to roll through to the bottom line. Profit projections are falling short of expectations and cost cutting initiatives take hold.

We have all felt the pain of seeing marketing budgets pulled, team members laid off, innovation projects shelved, travel restrictions applied… all in order to achieve a profit target. Not-withstanding the irony that these are critical business activities needed to generate sales in the first place.

Remember the Bain & Co proof point? A 1% improvement in realised price can deliver an 8% improvement in operating profit? Doesn’t it make sense then that the inverse of this true also?

For every discount we give there is a negative consequence to the bottom line. Yes, you might sell more product or make a sale maybe you wouldn’t have otherwise, but how much more do you need to sell, in order to counter any impact to your bankable profits?

There is no denying the trend of bigger and bigger discounts and it’s easy to get fooled into thinking the additional sales equate to success. In reality, this is rarely true. Often the profit you’re left with is actually less than what you would have made if you did nothing in the first place.

In the FMCG world, it is not unusual to see actual sales demand to discount ratios worsen as the discounts get bigger with profit erosion a reality for both supplier and retailer.

In B2B, discount creep is also a very real problem. It is not unusual to see discount buckets cluster in 5% increments. 10% becomes 15%, 20% or 25% right? It’s nice and neat. But the consequence is dire.

What difference would a 1 per cent increase make to your price? Usually not much.

What would an 8 per cent improvement mean for your bottom line? Job security? Better bonuses? Exciting innovation?

Some thought starters to identify your leaky buckets;

Seek out trends of high profit growth or decline
Look at your discount structures and see what patterns are at play
Model the impact of discounts on key metrics through the line
Understand price elasticity of demand

I’d love to know what pricing challenges are you facing! Share your comments below.

3 Insights about YOU (and your team)

Conflict can rip a team apart, skyrocketing resentment against management or even pitting co-workers against each other. But office conflicts will calm down, or even dissolve entirely, once people understand each other’s differing Advantages. Once you know someone’s Advantages, you can see past the exterior and understand what’s really going on.

Each Advantage is like a different “language.”

For instance, Alert is the language of details, Mystique is the language of listening, and Innovation is the language of creativity. When you understand what languages your team members are speaking, you can better understand why discord is happening in the first place.

Which Advantages do your team members or employees use when they communicate?

A diverse mix of Advantages can provide balance for a team.

Rather than forcing your team members to change, help them become more of who they already are. Once you know which Advantages your team uses, you can help each person succeed by dialling up their existing traits. Rather than training people to follow a formula (and trying to force-fit them into a mould), you can support them in adding value in the way that is most effective and natural for them.

Every Advantage has an important role within an organization.

Just as employers should seek diversity in gender and backgrounds, so should they also understand the Advantages used by their existing team members and potential hires, in order to build teams with a balanced and healthy interplay of perspectives.

TELL US IN THE COMMENTS: Which Advantages do your team members use? Mostly Innovation (creative new ideas) or Mystique (strategic analysis)? If you want to find out for sure, have them take the personality test.

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Blog originally written by Sally Hogshead on How To Fascinate.

If you want to stand out from the crowd – to grow your reputation, and attract more business – then you need to know how the world sees you. Tap into your personality’s natural advantages, and unlearn how to be boring.

Want to learn how YOU fascinate? Start with the Fascination Personality assessment – the first science-based personal brand assessment.

You can start fascinating in just 5 minutes.

The one-page method for reimagining your business and reinventing your marketing

This was a Kindle purchase for me but one of the few books recently that I stuck with from start to finish – so that’s saying something for me!

This book certainly resonated with my philosophy that product based businesses need to take a leaf out of the s difference-book-3d ervices industry and put their customers at the heart of their business.

To understand what really matters to people, ‘to create ideas and experiences that give your customers reasons to care and to belong, not just reasons to choose’.

As marketing is going through another dimensional shift as the digital revolution puts power firmly into the hands of our shoppers and consumers – working out how to create a difference that disrupts people and becomes part of their story and their lives.

If we want to really get innovation right and have it stick, then we need to figure out what needs people really have. The Difference Model does this by flipping product development on its head. Rather than starting with a product concept or idea, it explores people’s realities and how those needs can be met.

The fact that it comes with a practical, easy-to-use template makes it even better. I worked through this process for my own coaching business and was intoxicated by the impact of seeing the everyday challenges faced by businesses through the eyes of those on the ground confronting them. It gave me a whole new set of motives to appeal to.

I ended up highlighting sooo much of the content that I will end up buying the physical book too as I know I will reference it often.

Buy it here

LOY-AL

‘Having or showing complete and constant support for someone or something’

Source: MerriemWebster.com/dictionary

In today’s digital landscape of open borders and increased options, the need to strengthen brand loyalty has never been more critical.

And while shoppers are handing over personal information fast and furiously to retailers in the hope that they get something of value in return, many retailers are yet to effectively utilize this data.

The first step: use your data! Knowing ‘what’ your shoppers buy, ‘where’ and ‘when’ gives you a good understanding of their worth. From this you can at least start to customize your offers as appropriate.

What it doesn’t tell us ‘where else’ shoppers are spending their dollars or ‘why’ they chose to spend elsewhere.

Understanding this ‘WHY’ becomes even more critical when it’s believed that around 80% of a shopper’s buying decisions are driven by emotions, not by logic.

Step two; create a dialogue with your shoppers. Invite them to give feedback, incentivize them to complete a survey. Whatever it takes. Ask them what they are getting from competitors that they are not getting from you. Then see if you can accommodate these needs.

With the customer journey and path to purchase more complex than ever, building brand loyalty isn’t just be the domain of marketing teams. Creating strong personal relationships, having empathy and improving the customer experience is key.

Do you have a firm grip on what is going on in the engine room of your business?

Do you travel along in your business as you would driving a car? Do you jump into it and turn the keys each day, on the assumption that all is traveling ok, navigating the odd bit of traffic here and there? Are you driving your business in blind faith that everything is ticking along okay. Waiting for your yearly check-up/service to give it the all clear for another year?

Or do you manage your business like you would a race car? With a highly specialized team regularly assessing what’s happening under the hood. Monitoring, tweaking, refining… Making sure it is performing at its best?

What I’m talking about, is not what you see from above. It’s not the shiny interior or the odd accidental scrape you hit now and again.

What I’m talking about is stripping back the engine. It’s getting under the hood. Inspecting the parts that are past their use by date.

Its understanding what components are performing effectively and efficiently?
It’s identifying what parts are draining too more than their fair share of resource for little return?
Maybe opting for new accessories that would significantly enhance your performance?

I get it. You’re busy and who likes number crunching anyway?

But seriously, ignore the numbers at your peril! If it's not your strength, then get help with it. Market analysts are the secret weapon of large corporate companies.

Mining customer and sales data is the key to finding game changing insights which can in turn create strategies for improved sales, growth and profitability.