The Top Five Misconceptions About Pricing

This article first appeared on Industrial Distribution.

Per a recent Modern Distribution Management article, the second-most important factor to improving shareholder value is strategic pricing. Yet, it’s often the last bastion of guesswork in B2B, riddled with commonly-held misconceptions and myths. In this blog post, we met with the Zilliant Customer Success and Data Science teams to discuss the top pricing misconceptions they encounter. Read on to learn a few.

No. 1: Cost-Plus Pricing is Effective “A lot of businesses still use cost-plus pricing, which involves adding a certain amount to cost and setting that number as the price. The common assumption is that cost-plus pricing helps to maintain profit and reduce uncertainties and risks, but there are definitely a lot of disadvantages to this. First of all, it is very difficult to calculate the exact cost, plus you also have to consider the opportunity cost, which most people ignore. Cost-plus pricing does not take into consideration the demand of the market and the price sensitivity of its customers. It also does not take into account any competitive factors that may be affecting the price. Keeping in mind these risks, price-setting should be done more intuitively,” said Zilliant Senior Pricing Scientist Prachi Munde.

No. 2: Scientific Pricing is Only Forecasting “The techniques employed in pricing science fall into two main categories: forecasting and optimization. The biggest misconception about pricing is that it is a forecasting tool. The main purpose of forecasting is to measure the effect of price changes on market demand, whereas the ultimate goal of pricing science is to find the optimum pricing strategy to improve the business. To be more specific, the first step in pricing is to analyze the historical data to capture the trends. The next and most important step is to not necessarily repeat these trends, but to modify them in order to improve the business,” said Zilliant Senior Pricing Scientist Amir Meimand.

No. 3: More Time = More Sales Effectiveness “The biggest misconception is around sales effectiveness – particularly the idea that by giving sales reps more time by streamlining or removing non-selling activities they will sell more. To effectively use the extra selling time, sales reps need the right information at the right time. If the information is not timely or it’s not relevant to the situation, then the sales reps end up wasting their valuable time,” said Zilliant Director of Client Services Steven Smith.

No. 4: Adoption is Automatic “That continuous benefit and adoption automatically occur after the conclusion of successful implementation and launch. Initial excitement and education about a new system quickly fades. Without an effective change management strategy, adoption can stagnate or even decline because of poor sponsorship, lack of analytics to report and measure progress, and missing support mechanisms such as training and incentives,” said Zilliant Customer Success Manager Nathan Rabold.

No. 5: If You Build It, They Will Come “‘If you build it, they will come’ (Field of Dreams, 1989) could not be further from the truth. Change, in the form of pricing optimization and/or sales enablement tooling, must be championed, monitored and reinforced. Companies don’t partner with Zilliant to manage the status quo; they rely on us to bridge gaps, correct trajectories. Our science allows clients to intuitively connect-the-dots and it opens their eyes to the possibilities. That’s the Zilliant change proposition,” said Zilliant Director of Customer Success David Dewerse.