Growth Insights for CEOs

Price Erosion: Is Your Day-to-Day Mindset Killing You?

Posted by The Chief Outsider

Grow or die. Grow wrong and die a slow death. Every CEO is faced with the challenge of ensuring results today, this month, this quarter and this year. And everyday tradeoffs need to be made. For example, how often does the CEO get requests for discounting?  And when the company responds to these short-term opportunities to secure a big order, how will it limit any negative impact on the long term pricing strategy? 

Discounting can bring the big order, the big sales day and help close the quarter with a nice result. It may also elicit a response from your competition, and a demand by your customers, that discounting be the norm and not the exception. Heck, it’s the customer’s responsibility to acquire what they need at the best price they can negotiate. It’s the company’s responsibility to provide fair competitive pricing and remain viable. 

“Let’s make it up on volume” has been a chant of many salecutcaster 800916284 Stone surface smalls managers and representatives. They usually don’t think about the long term implications of pricing actions because the sales mentality is very “now” oriented. But CEOs have to ask – how do we reconcile short term pricing pressures with long term pricing strategy?

Let’s get really specific. When the sales manager calls the CEO and says:

“I may be able to get this order, but I need you to approve a 40% discount.  I can’t guarantee we will get the order, but I can guarantee that we won’t even be considered if we don’t discount 40%.”

Do you ok the discount and hope to get the order?  If yes, how do you make certain you don’t create price erosion?  How do you get future orders from this customer and not discount at least 40%? Considering the implications is a key role of the CEO. And the implications go beyond your direct customer relationships, as competition will certainly respond if you lead with discounts.  Your market share position will determine the degree of response by your competition. 

So make sure you are looking at the long term implications of your short term strategies and tactics so your company will have a long term.

Go to Medsider  to learn more from this author on this topic.

- Marshall Perez, Partner & CMO

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Topics: Pricing

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