INTEGRITY PRICING: MANUFACTURING TRUST by Michael Hurwich

WHERE DOES YOUR COMPANY STAND when it comes to building pricing trust and demonstrating credibility with your customers?

Have you:
a) Earned it?
b) Lost it?
c) Never had it at all?

If your answer was b) or c), it's time to ask where your management team made the wrong turn.

Was it a poorly defined pricing strategy? A betrayal of product, service and pricing support? Conflicting goals and objectives? Misguided pricing practices?

Well, often the answer resides in some element of all of the above.

Some of the most common symptoms of poorly-executed integrity pricing include:

• Providing discounts and allowances to many, if not all, of your accounts;

• Favorable pricing to customers who have not earned it through volume, a profitable sales mix, or loyalty to
  the relationship (see illustration);

• Fluctuating pricing strategy that favors price-sensitive buyers who will "jump ship" given a new opportunity
  from your competitor;

• Compromising the best interests of the existing customer base in favor of new accounts with undefined
  loyalty;

• A frustrated sales team looking for definitions of what constitutes a fair price for the value offered; and

• Starting the conversation on the topic of price, or a price concession.

A key lesson has been realized:

Managers need to make pricing decisions that are consistent with customer behavior while avoiding the noise from competitors, price-sensitive buyers and professional negotiators, as well as internal corporate dynamics that reward volume and sales over profitable and relevant market share.

For companies that have already lost price integrity in the eyes of existing and non-customers, their focus should be to work their way back to a value-based pricing strategy.

Achieving this will require some imposed discipline internally, as well as a communication strategy to help change and manage customer expectations.

The goal should be to raise customers' willingness to pay a price that reflects your product's true value, rather than simply accepting whatever customers are willing to pay. Consider the pricing game like a game of Poker:

Don't let customers bluff their way into an attractive deal.

The most powerful single communication you make about your product is its price.

Although it takes years to create, capture and communicate value through price, it takes only a few moments to compromise and lose credibility and trust with customers.