Pricing is one of the most important components of running a business—after all, the price of a given product or service will ultimately determine how much your business ends up getting paid. However, it is also a component that many business owners tend to overlook. Even if they initially used a sophisticated program to determine their pricing model, many businesses will simply set their prices and move on.
Failing to regularly update your prices can be extremely costly. In fact, several studies have demonstrated that a marginal improvement in pricing will have a more significant impact on your business’ bottom line than a marginal improvement in sales. So instead of only asking, “How can we increase sales?”—a question undoubtedly worth considering—your business also needs to be asking, “How can we create value through a better pricing model?”
The Importance of Frequent Price Updates
No matter what industry your business might currently operate in, it is likely moving faster than ever before. Increased economic volatility (as measured by the volatility index), unstable global supply chains, increased global connectedness and rapid digitization have all caused markets to become more sensitive. While the set-it-and-forget-it model has always been inefficient, this widely used and outdated strategy is proving to be even more consequential in the modern era.
Look at the world’s most efficient and widely utilized market: the stock market. Stock prices change multiple times every second. If they didn’t, they’d be exposed to huge inefficiencies and would no longer reflect what things are “actually” worth. Although your business might not necessarily need to change prices by the second, it is clear that you should be updating its pricing as often as your business requires and allows. Frequently updating your pricing—whether your business is involved in manufacturing, service, distribution or any other industry—can help ensure you are reaching a wide audience, increasing margins and maximizing your bottom line.
How to Improve Your Current Pricing Strategies
By simply updating their prices, businesses can potentially increase their annual revenue by 8% or more. The question that remains, it seems, is how do I know which price is the right price? After all, changing your prices just for the sake of change will not guarantee you can capture this value.
Luckily, in an increasingly data-driven world, there are many excellent resources available that can help your business find the optimized price. PROPHET, for example, is an innovative platform that makes it possible to continually monitor variables that might affect your pricing choices, including changes within your own business, changes among your competitor’s prices, changes within the broader industry and more.
Through the use of data science and machine learning, PROPHET makes it possible to automatically receive up-to-date pricing recommendations and adjust your pricing model accordingly. It also makes it easier to coordinate pricing strategies across multiple channels and optimize your discounting strategies.
Many business owners will wait until a big event occurs before they choose to change their prices. They might wait for the cost of shipping to reach a certain level, for the cost of a material input to change, for inflation to drop or for other dramatic changes. But your business isn’t only affected by these big events—it’s affected by thousands, even millions, of tiny events occurring every day. With a modern and robust pricing platform, you’ll be in a position to react to these tiny events and establish a competitive edge through better pricing.