September is nearly ended and we are preparing to start the 4th quarter of the calendar year. For many companies, it is also the final quarter of the fiscal year. Similar to sports teams, whether you have a lead or are trying to catch up, winning in the 4th quarter often determines whether you win or not for the full year. That often means a big push to meet or exceed targets by finishing the year strong. Focus and effort are critical, and strategic pricing concepts can help you determine which customers to target. More specifically, you can use the insight from your pricing analytics to help you be more efficient and productive. That insight can also help you make decisions that won’t come back to haunt you next year.
A fairly simple way to identify higher value targets is to think about your customers in terms of how many products they need or could buy, and how price sensitive their behavior tends to be. You can plot your customers and prospects on a simple grid like Figure 1, and prioritize according to the grid. The quadrants can be categorized as High Priority; Good, Not Great; Caution; and Avoid.
On the horizontal axis, the breadth of product assortment the customer needs will give you indications of how many purchase decisions will be made in the 4th quarter, and the likelihood of customer needs for non-core products that you are not already discussing. Customers who purchase a large assortment give you more chances to win. These customers also are more likely to purchase products that are less critical and don’t get as much price scrutiny.
On the vertical axis, the level of a customer’s price sensitivity gives you indications of how likely they are to switch to your competitor for a lower price next year, and how high the margins are likely to be. Go after the customers with lower price sensitivity where you can get better margin efficiency and they are more likely to stay with you. If your pricing analytics don’t show price sensitivity, think about evidence of price sensitivity such as how often they switch suppliers, how often they call for support, whether they order electronically or by phone, how often they ask for a price before ordering, and how often they request rush orders. You can probably think of your own questions too.
Your highest priority targets should be the customers who use a large assortment of products and who have tended to be less price sensitive. With these customers, you will have more opportunities to win, and the pricing is likely to be better, so your time will be more efficient and effective.
Don’t waste your time on the customers in the upper left quadrant. Since they will make very few purchase decisions you will have to work very hard to get any sales, and those sales would be at low prices. The efficiency of the margin you earn compared to the effort required will be very low. Also remember if you take this business from someone else with a low price, the odds are high that the customer would switch back next year if your competitor lowers the price again. You may think that is a trade-off worth making, but you would regret it next year.
There are opportunities in the other two quadrants, but they are unlikely to be as productive as the High Priority targets. The smaller assortment but less price-sensitive group gives you fewer chances to win, but the prices should be good and they will not drop you next year for small price decreases. Conversely, the high sensitivity customers with a large assortment give you more chances to win, but margins may not be as great. For this group, look for opportunities on non-core products that the customers are buying elsewhere and perhaps are not even considering you. Make your pitch with a focus on the particular value your company brings and the outstanding service you provide them.
Good luck in the fourth quarter. Use your pricing analytics to set your priorities and you should be more successful.
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