June 4, 2012
Last year I participated in the JP Morgan Chase Corporate Challenge, with a team of pricing people. We didn’t expect to be high in the rankings, but we approached the event with a healthy sense of competition.
On the day, shortly before the start of the race, there was an almighty thunderstorm and torrential rain. The race was delayed for a couple of hours. Anyone who’s been involved with any kind of sports knows that proper nutrition – substance as well as timing – is key to optimal performance.
A few of us went to look for something to keep us going. We found a gas station a couple of miles away, and we were able to pick up a few granola bars. Back with the team, we huddled under a rudimentary shelter, some of us soaked to the skin, already having run a couple of miles.
This being a collection of pricing people, someone dryly noted that the price of the bars (about $2 each) may have represented a missed pricing opportunity for the vendor. With 20,000 people looking for something to eat, there was definitely a scarcity factor. Also, there must have runners keen to perform well – which could have been at risk without appropriate nourishment.
So, in the context of B2B pricing, what does this tell us about the pricing opportunities available to organizations? We need pricing professionals at work in our businesses, considering not only the strategic and long-term, but reacting quickly to perhaps temporary situational changes and customers’ historical buying patterns – based on good data, of course.
What are the kinds of things that might lead us to identify and leverage opportunities for situational pricing? Here are two thoughts:
– Shortages in supply chain. We all know conceptually, that an inbalance between supply and demand will lead to changes in price. Hand-on-heart, how many of us can say that our organization is positioned to appropriately and quickly react? Our customers expect us to react when there is an over-supply, but are we as accomplished at positioning in situations of under-supply?
– Changes in customer behavior. Consider a customer who seldom buys, suddenly enquiring about availability of a large quantity of product. We have often seen examples of this being handled by sales organizations as an opportunity to “win” a large account from a competitor and thus cutting price further, without due consideration of why this might be happening. Perhaps their usual supplier has cut them off for poor payment performance, or has landed an even bigger customer.
With some attention and focus, your organization can see significant improvements in margin by being able to apply some situational pricing.
– Ben Blaney