For B2B companies, the pressure to discount price can skyrocket during times of economic crisis. This pressure comes from all sides: customers seeking price relief, management pushing to compensate for declining market size and/or to hit their unrealistic objectives set prior to the crisis, competitors pushing to retain or gain share, salespeople worried about their own compensation as well as their customer relationships, and societal pressure to be a good corporate citizen. Resisting this pressure while balancing the desire to do the right thing is not easy.
While many of these pressures come from difficult, real-world circumstances, pricing misconceptions abound during times of uncertainty, and have a negative impact on B2B businesses’ profits at a time when they are already suffering. These misconceptions lead to business leaders’ and sales team’s behaviors (or lack of certain behaviors) that either create or enable a more price aggressive market to unfold – one where market prices fall faster and deeper than need be. Since price is typically 3 – 5 times more powerful then volume at affecting profits (e.g., a 5% price decline has the same profit destroying effect as a 15 – 25% volume decline), this can have a devastating impact on the health of businesses.
My mental image for pricing during a crisis is pushing an exceptionally large, heavy boulder up a very steep hill. It takes tremendous effort just to hold the boulder in place and even then, it is likely to slip downhill a bit. Yet, standing on the sidelines – watching the boulder – is not a wise strategy. A boulder with no upward force will fall down the hill picking up speed as it goes. Gravity will win. Similarly, in the business world, standing on the sidelines – watching what is happening in your markets with customers and competitors – is not a wise strategy. The heavy downward price pressure of customers, market dynamics, sales, leadership, and society will win. Prices will fall faster and further then need be. During these tough times, it is more crucial than at any other time to act quickly, thoughtfully, and proactively. Time is not your friend; you must get ahead of the situation or it will get ahead of you. While ‘a watch and wait strategy’ is a misconception in itself, for companies that side-step this fumble by proactive price planning, there are seven additional missteps I commonly see.
A key misconception centers around businesses that act as if getting through the crisis is essentially just a strategy issue – solved by leadership and price setting strategies. Or just the opposite, the companies that essentially leave it all in the sales team’s hands – believing managing through the storm is predominately an execution issue. Either approach is insufficient for success. Achieving price success requires equal strength in strategy and execution under any market dynamics. During a crisis, it is particularly critical that companies work on both strategy and execution in an aligned and coordinated fashion.
The other six misconceptions are split equally between strategy pitfalls and execution or negotiation pitfalls. Strategy misconceptions center around questions like “Can I influence the market place?”, “Isn’t it only fair to provide price relief to my customers as they struggle through this crisis?” and “Shouldn’t we protect our volume at all costs?”. While execution pitfalls lean towards questions like “Don’t our salespeople need more flexibility to negotiate price in these tough, competitive times?”, “Our sales team is very experienced, so they must have the skill and confidence to price well in a crisis, right?” or “Customer letters and announcements are only for normal times and price increases, right?”
To learn more about these misconceptions and how to overcome them, read my newly released book Pricing in a Crisis Playbook or join the LeveragePoint webinar on Thursday, May 28th.
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