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Covid-19: A Crisis and an Opportunity for us to Revisit the Business Model.

 

Covid-19 is Both a Crisis and an Opportunity for us to Revisit the Business Model.

By James Yang

We are all happy that 2020 will be soon behind us and looking forward to a better 2021. But with Covid-19 leaving so many scars in the market, many organisations are facing more uncertainties and challenges ahead, such as:

a) How to better understand and prepare for the impacts of this rapid changing and constantly disrupted world on business, markets, customers, and supply chains;

b) How new social distancing rule may have a flow-on impact on the market, customers, segmentation and demand, and;

c) How the increase use of credit card can impact on revenue and the bottom line.

Pricing, being the focal point of connection between businesses and market, is strategically important to many organisations. As Warren Buffet once said, pricing power is the single most important aspect to consider when evaluating a business. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10%, then you’ve got a terrible business.

There is no such thing as a winning pricing formula, and there are many dependencies. Everyday Low Price (EDLP) has been working well for Walmart and Bunnings (in Australia). But will it work for your business?

Value-based pricing focuses more on the customer than cost. It’s based on customers’ value perceptions and their willingness to pay (WTP). In the software industry, where value is more important than cost for pricing, value-based pricing is de rigueur.But it doesn’t mean cost plus and competition -based pricing are out of date. Both can provide good cross-reference checks for a value-based approach to pricing. For large bids and tenders (e.g. in large engineering projects or customised software development) cost plus pricing is (rightly or wrongly) still considered the main approach.

How to determine what should be my best approach? Unfortunately, many organisations today lack a strategic pricing capability to make this judgement. A strategic pricing function looks at pricing challenges from both a top-down and a bottom-up perspective, and through the lens of marketing, product value, segmentation, customer demand, revenue forecasts, cost and internal delivery efficiency, to evaluate and determine how to set up a viable pricing and revenue strategy moving forward.

Covid-19 is both a crisis and an opportunity for us to revisit our business models, not just from business strategy perspective, but also from organisational perspective. For many companies pricing capabilities are becoming increasingly critical to their abilities to implement other strategies. It’s no longer “nice to have”, or something to do when we have the budget or resources. It’s a matter of survival, especially given the crisis now, and the opportunities ahead. Consider the cost of not having one, or what a bad pricing decision can cost you.

Is it time to consider and develop a long-term strategic pricing capability for your organisation?

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