This month we continue to fiddle with the format/contributors of the MBR. I am joined this month by Sarah Ahern who discusses the most powerful driver of earnings; Pricing. I kick us off with some personal notes. These probably won’t be a monthly feature, but I thought you might be interested in a little adventure.
The Economy and Investments in 2023
I don’t make economic forecasts but some credible sources I respect suggest we are at an inflexion point. Certainly, we need to arrest the inflation spurred by all the government free cash in 2020 and 2021, but Dalio and Munger have both put out YouTube warnings that this might be something more. Give some thought to your financial positions and balance sheets in the next couple of weeks.
On Video Recently
I was impressed by Musk’s recent interview with Ron Baron. Very clear and on point for issues important to our way of life. I especially appreciate his use of Redbank’s Principle of Profitable Growth #9: “More like this, less like that.” All that time he was looking foolish, unable to get cars out the door in the quantities he predicted, they were optimizing the plant by simplifying the design of the car. Making it more manufacturable. Lots more of value in that interview including some heartening news about Twitter’s anti-bot measures. (Update: he may have walked back that change.)
Invitation to a Life Changing Event
Redbank Outfitter is in the planning phase of its first Grand Expedition. This expedition may not be very far at all, depending on the weather it may be here in Ohio. But still life changing. If you have not seen a total eclipse of the sun, that is if you haven’t stood in the center of the totality, you should join us as we view the totality in 2024, because you don’t know what you’re missing. I was there in 2017 and I decided then that I would make this experience available to a small group of individuals in 2024 when the next total eclipse occurs. So if you are interested in seeing the total eclipse of the sun, and making your life worthy of a Karli Simon song, complete with excellent equipment, the right location and an excellent professional guide, let me know and I’ll include you in the planning.
Pricing and CEx with Advisor Sarah Ahern
In the thousands of customer conversations our research leads us to have, the feeling is clear – people are unsure about what’s going to happen. 2023 earnings predictions continue to drop, and the competitive landscape is murky. We know that uncertainty is toxic for business. Do you, as a business leader, have the revenue strategy you need to confidently plan for 2023?
Pricing is a key part of a company’s go-to-market strategy. The effective use of pricing strategies can revolutionize a business – if done well. It all starts with deciding what actions best position you to win in the market.
Customer experience data can make that clear. Pricing strategy based only on internal metrics – for example, cost plus margin – is not enough to outperform the market. The most strategic, capable businesses focus on how much value they can deliver for their customers and what customers will pay for it. This is called the “Experience Premium”.
Understanding The Competitive Pricing Landscape Requires:
• A clear understanding of the cost of delivering your product/service
• A data-driven picture of your competitors’ pricing
• An ongoing conversation with customers – your own and your competitors’
Providing too much value compared to price compromises your pricing strategy as much as providing too little. It can also be damaging to earnings. We recently delivered glowing customer experience insights for a $97 million transportation company. Upon deeper analysis, it was clear the company was overdelivering. Their customers felt like the value they received was well above the price for the service – and it showed up in the negative effects on the company. Systems were stressed, scaling capacity was maxed out, and additional capital for much-needed resources or improvements wasn’t available. Growth was limited because money was left on the table.
In a constantly evolving market, doing research to keep prices right is an absolute necessity. Pricing is not a set-it-and-leave-it exercise. Price is one of the most important decisions affecting a company and should not be left to chance. The price you go to market with is the single most powerful lever to impact earnings.
Are you building a pricing strategy that will position you to win in uncertain times? If not, Redbank can help.
Call To Action
Use Customer Experience measurements to determine your pricing posture; headroom, legroom or Goldilocks.
1. If you’re not using customer experience measurement today. Start this first.
2. As part of that process, sense your customer’s posture regarding the value of your exchange.
3. Adjust your performance accordingly
4. Lather, rinse, repeat annually.
I hope you found something to apply to your business in this MBR. Let me know either way.
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