If Cash is King then don’t let weak price control be your Macbeth

When a former Volvo CEO meets a Shakespearean tragic hero, a clear pricing strategy might be needed.

Dont let turnover ambition kill profitable pricing

A trawl around the internet fails to give a definitive answer to who actually coined the phrase “Cash is King”. The same ambiguity exists for “Turnover is vanity. Profit is sanity. Cash is reality”.  But we do know that Duncan was killed by the ambitious Macbeth, eager to please his wife and claim his glorious place as the King of Scotland.

But what does this have to do with product marketing ? As the pressures to grow the  top line increase, its paramount for marketers to ensure that a clear pricing strategy is well deployed in order that profitability doesn’t fall victim to the ambition of turnover.

Are your Finance, Marketing and Sales teams aligned around a profitable pricing strategy ?

I like the saying about turnover, profit and cash. Each part of this  trinity has its place in the business world. But as Sally Bowles told us, what makes the world go round is money .

These three are of course intrinsically linked. Without sizeable turnover, margin measured in percentage translates to almost nothing in real value. And without profit you can’t collect the cash, the lubricant that keeps all businesses running smoothly.  Obvious really, but I’m always surprised to discover than good pricing is still a mystery to many companies.

During my recent research talking with B2B companies I discovered that some clear issues are very common:

  • Determining the price can be a random process, often driven by internal costs rather than the market competitive situation and a reflection of the value provided.
  • Only around half of companies asked felt they understood the price dynamics of their market.
  • And only around a third said they manage price consistently.
 
 

If companies managed their production or quality processes with the same lack of care they put into pricing the results would be clear for all to see.

The D word - discount

One final though is around giving extra discounts to either win new business or to protect existing business under threat. This is where a well deployed pricing strategy can avoid poor decision making, and strengthen your negotiations. Its astonishing to believe but many of those involved in price setting – marketing and sales teams usually – are unaware of the impact of giving extra discount has on margin.

A company making 50% gross product margin that gives just 5% of extra discount needs to sell 11.1% more in volume just to generate the same profit in cash terms.

This rises to 25% volume increase for a extra 10% discount.

Just think that over for a second. Not only are you generating less profit, you need to work your factory harder just to stay at a level position. Do you even have that spare production capacity available or do you need to invest in new lines, employees or even factories ?

That’s why pricing is critical, so don’t let the vanity of increased turnover leave you with double , double toil and trouble.

If you’d like to find out more about how Re:Fresh B2B can help you on pricing contact us here.

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