Why Pricing Matters

January 31, 2019 | Buying & Selling

Back in the 1990s, Walmart went through a massive expansion in the U.S. that brought lower priced goods to all 50 states (Vermont was last in 1995). Not only did Walmart’s model compel their competition to look at how products were priced, they also pushed that philosophy to their suppliers with requirements for year-over-year cost reductions.

Today, Amazon is the new Walmart, with their e-commerce platform representing over one million U.S.-based small and medium-sized businesses (more than 20,000 small and medium-sized businesses worldwide surpassed $1M in sales on Amazon in 2017). Their platform brings worldwide products to a single platform, which has made price simple. The result is immense competition that has driven prices down for consumers.

Walmart and Amazon are just two examples of how competitive pricing models have had a significant effect on suppliers, competitors and the market as a whole. So far in our the 3 Pillars of Growth series, we took a deeper look at Participation and Targeting. Now let’s unpack pricing and the many dimensions that drive a price up or down for network operators and aggregators.

Your Network

Visualize your network today. Now imagine all your new offerings in five years. Lastly, think of what services are entering their end of life. These items make up your current and future supply-side drivers. Areas of expected growth or locations with new service may get pricing discounts to help drive sales and adoption. Products heading toward end-of-life might be priced above market rates to disincentivize prospects from those items that you are not looking to sell in the future. The supply side of the equation is something network operators have full control over and is driven by several areas of the overall organization and their respective needs.

Demand Side

Customers and prospects look to you for services; however, where those services are provided, what size and speed they require from you, and when they are looking to purchase are all items that drive the demand side of your business. Two identical customers looking for the same product in different geographic areas can have very different demands of your installation team. Moreover, that one-off customer looking for a single location is quite different than an enterprise asking for service at twenty locations. These different levels of demand create additional layers of complexity to your pricing models and, unlike the supply side, demand is something typically driven by forces outside of your control.

Market Forces and Competitive Landscape

The move to 5G, mergers and acquisitions, competitor’s promotional pricing, new federal or local laws. All of these items (and so many more) are shifts in the market that affect pricing. Some result in lower pricing to meet the market while others elicit raising prices to capitalize on market opportunities. In all cases, these market forces push you to review your current pricing constantly to stay competitive and to extract the most return on your sales and marketing efforts.

Final Thoughts

In our world, where there are supply, demand, and market shifts at play at all time, the ability to develop complex pricing models if critical. Understanding these dimensions of pricing and incorporate them into your own pricing model will allow you to maximize both revenue and margins.

As we head into 2019, consider how you are participating in the market, targeting the right customers, and how you present your best pricing model to drive growth into this year and beyond.

Author: Connectbase

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