A guest post by Yoann Delwarde
About nine years ago, when I arrived in China, most conversations revolved around one term: ‘growth’. This wasn’t just a word, but a visible reality. Newly laid roads stretched across landscapes, cutting-edge innovations were emerging at every corner, and salaries were witnessing a significant surge. With China having double-digit growth, optimism was in the air. However, fast forward to today, major cities like Shanghai, Beijing, and Shenzhen are forgetting the earlier notions of ‘cheap’ living and production. With China evolving into a mature market, the narrative is changing. As the thirst for explosive growth is moving elsewhere in Southeast Asia, ‘pricing’ has become the catchphrase for executives and sales leaders in China.
Understanding The Pricing Paradigm
With the changing landscape, perceptions are shifting. Sales leaders, who once would have encouraged double-digit growth sales figures, now approach such numbers with caution. The compass of corporate strategy is being recalibrated. It’s no longer about just scaling the revenue; there’s an increasing focus on profitability. The dominant question in sales review meetings has transformed. It’s no longer, “How much more volume can we sell?” Instead, it’s increasingly about, “How can we optimize our profitability without compromising on quality and customer trust?” Such shifts, while essential, are pressuring sales teams. They now face the pricing stress, given their past reliance on competitive prices and volume-based strategies to capture market shares.
Pricing Stress Examples
Understanding pricing stress requires us to delve into specific scenarios. For some companies, especially those not rooted in China, there’s the specter of inflation in regions like the USA or Europe. Such external economic pressures might push them to adjust their prices, a situation that local Chinese competitors might not face. Then, consider a China-centric company. Faced with aggressive competition and a potential price war, it might strategically decide to elevate its prices, aiming to be seen as a premium brand and thus sidestepping direct competition. Another layer to this complex web could be a firm’s forward-thinking approach, where they prioritize high added-value services over standard ones, fully aware of the replaceability of the latter in a short span of two or three years. Each scenario is unique and demands a customized strategy. Yet, all scenarios require a balance between external and internal factors to address them properly.
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The Dual Factors: External and Internal
Deep-diving into ‘pricing stress’ necessitates an analysis of both strategy and implementation, viewed through the lenses of external and internal dimensions.
- Strategy-External: It’s imperative to understand one’s positioning. Where does your business stand in its sector? Within that realm, how are you positioned? Let’s take an example from the automotive industry. If your focus is on producing indispensable parts for electric vehicles (EVs), you might have a considerable advantage in this year’s market. Such a strategic position empowers you to adjust prices more freely than those still focusing on traditional combustion engines. Market relevance, thus, is a significant determinant of pricing power.
- Strategy-Internal: Aligning sales strategy with overarching company goals is fundamental. If there’s a potential that a 10% price increase might lead to a 10% client drop-off, the repercussions of such a decision need to be weighed against company objectives. It’s a delicate balancing act, and many companies falter, not adjusting their incentive structures in time to reflect strategic shifts. Would it be fair that your company gains profitability with better prices and meanwhile your sales team and leaders lose their commissions because they were not updated timely?
- Implementation-External: Relationships with clients are paramount. How deeply are you plugged into their needs and feedback? Are you aware of the pricing strategies of competitors and other suppliers? Such insights can be crucial to make the best data-driven decisions. If competitors are shifting their pricing paradigms, it might be a wake-up call for you to diversify, exploring new markets instead of just relying on your existing clientele. Too often, pricing cannot be raised because of a lack of strategic business development.
- Implementation-Internal: In price-sensitive markets, negotiation process is gold. A common pitfall for sales teams, driven by the fear of client attrition, is to give bottom line prices. Bottom line prices meaning the lowest prices that the management is willing to accept. However, the uniqueness of your offering, its value proposition, is lost in that process. Equipping sales teams with the right knowledge, ensuring seamless collaboration between technical teams like engineers and front-end sales teams, becomes increasingly important for success.
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A Three-Step Approach to Manage the Pricing Stress
Navigating the complexities of pricing stress demands a systematic approach. While each scenario possesses its unique challenges, we have seen great results with this 3 steps strategy:
- Understand your Market Dynamics: Begin with an exhaustive market and competitor analysis. Most of the time, our clients do not have enough external insights into customer expectations and competitors’ prices.
- Create Internal Alignment: Cross-functional teams – from sales and engineering to marketing – need to work together. A great way could be to organize common training sessions to ensure a common approach to pricing. For example, what elements of the value proposition shall the engineers push forward? What key insights should the sales team gather before giving the client the final quote?
- Stay Agile with Feedback-Driven Adjustments: The market is constantly evolving. It’s crucial to review and recalibrate pricing strategies often. This feedback-driven approach can improve your profitability and limit the risks of losing too many clients during price increase times.
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» More about the Author «
At Infinity Growth, we empower our clients to transform their businesses, from strategy to implementation, to achieve sustainable growth. When strategies and processes are aligned, we have seen as much as a 5 to 8% increase in profitability, most of the time after a short two-month transformation project window. We do so by empowering leaders and sales teams, equipping them with the tools and confidence needed. With engagements spanning over 100 clients across 10 countries, Infinity Growth’s footprint in the Asian market is deep and insightful.
Yoann Delwarde, the co-founder of Infinity Growth since 2019, is a corporate leader and an academic contributor, teaching at globally recognized EMBA & MBA programs like Skema and CEIBS. His insights, drawn from the realities of the market, are regularly shared in keynotes and conferences.