Howard Davis of @Contextworld asked a great question at #GTDCEMEA16: Do list prices matter? I’ve heard this question lots of times before, and I’m sure Howard asked me because he’s heard it even more times than I have. This is a continuation of a series responding to that question.
Businesses are list-price sensitive – as well as particularly sensitive to key list price points – for some products, but not all. That’s three different ideas in one sentence. If I was to unpack that I would say as list prices get lower businesses will (generally) buy more of most products. But once you get down to particular list price points on certain key products you will sell a boatload more. Your list price-demand function may well have steps in it. Notice the words “most” and “certain” in those sentences: it is equally important to understand which of your products exhibit little or no sensitivity, no point dropping list on those, if anything, quite the opposite.
I am not saying that businesses are not sensitive to the net price (list minus discount), but it is easier to manage pricing by making the list price do some of the work (are you in the right ball-park, have you something new to tell the customer, are you competitive, discuss value) and the discount (quid pro quo) the remainder. If you leave it all up to discounting, you’ll invariably end up with a problem controlling discounts and customer (dis)satisfaction due to inconsistent and unpredictable discounting.
The reason why business are list price sensitive is because customers can work out what a list price means to them. They don’t think of pricing as just the net price, but as the list minus their expected discount.
Once you hit those key list price points, customers can get pretty excited and that excitement can and will drag a whole boatload of other, less price-sensitive product or services with it. In fact, they can get so excited I would warn you that you need to work closely with your demand-planners so that they know several months in advance from your pricing roadmap when you’re going to hit those points, so procurement can hit those cost points, and supply-chain can get the material positioned ……
And if you haven’t find those key list price points, then you better start looking before your competitors find them …..
More to follow.
Thank you Howard Davis of @Contextworld! Once again, great question!
