Properly understood, the job of a marketing department is to drive revenue for the company. Some marketers do so by building and maintaining a brand, others focus on generating new leads, and others still focus on enabling sales to close more quickly and consistently.
A good company with a mature marketing department does all of these things, even if they focus on some areas more than others. But there’s one area of revenue generation where the marketing department is often relegated to a passive participant or even outright excluded: pricing.
In its simplest form, revenue can be expressed as an equation: Revenue = Units Sold x Price.
Too often, companies spend nearly 100% of their marketing efforts focusing on increasing the amount of product sold, ignoring the multiplier effect that a higher price can have on revenue. This can happen for many reasons, but when it does happen, there is almost always a common denominator: marketing isn’t owning the pricing decisions.
You’re probably aware of the marketing mix, which includes price for a reason. And, there’s no easier way to positively affect the bottom line than setting the right price for your product or service.
Your marketing department should have already conducted market research, analyzed buyer personas, determined differentiation and value propositions, and performed competitor analysis. Taking all of those functions into consideration, marketing is in the driver’s seat to determine what price makes sense and understand what your customer is willing to pay for it.
It’s vital for marketing to own pricing decisions, as the price influences the way that potential customers view the product or service. If the price is competitive and makes sense based on the value it provides, customers will purchase and come back, increasing the profitability of the business. A good marketing leader understands your markets, competitors, what your prospects want, and the value you provide. Having this understanding and knowledge allows them to bring a voice to the table regarding price that no one else has — meaning they have the knowledge to set a price that supports product positioning and the marketing mix.
Many companies undermine the heavy lifting of the marketing department if they charge too little and dilute the perceived market value of their product or service. So while the marketing department is describing how valuable the offering is, the pricing is sending the message that it isn’t that great.
Additionally, if your audience is looking for a premium product or service but price is attracting an audience looking for a bargain, you’ll find yourself with poor market position and money left on the table.
Your pricing strategy should drive home the same message your marketing efforts are delivering, not conflict with it.
Your sales department is focused on closing sales, even by means of lowering prices to ease objections. And your finance department is focused mostly on production costs. Both of these functions are important in pricing considerations, but are missing a key element: the value that your offering provides your customer.
Your marketing department already understands value – the business problems it can solve, what the solution is worth, and how it stacks up against the competition – which makes them fully equipped to develop a value-based pricing strategy that aligns benefits with the optimal price.
Success for a marketing department is determined by revenue. This means that instead of implementing a cost-based pricing strategy for the sole purpose of hitting a specific profit margin or setting prices low for the sake of selling more units, your marketing department will set prices to optimize revenue and volume.
Hitting your revenue goals with higher prices means marketing isn’t looking to attract every single lead. Instead, they’re attracting higher quality leads, leading to less price sensitivity and higher margins. If marketing can show higher ROI per tactic and per lead, they will earn their way into a bigger budget with the ability to do higher value, longer-term things.
After all of the hard work and cash flow that marketing has pumped into positioning your product or service and generating new leads, the last thing that should happen is for that effort to be undercut by low pricing – especially when your marketing department knows that your customer is willing to pay more for your product or service. Marketing is incentivized to charge the price that will generate the highest demand and maximize revenue.
Your marketing team has done the research and knows the ins and outs of all of your customer segments including what makes them tick, what keeps them up at night, and how you can solve their problems better than anyone else.
Each prospect has different needs and situations and can’t represent your entire customer base. What works for one prospect, might not work for another. The sales team is working to close deals right now, while marketing is less likely to be swayed by individual circumstances that – while important to respect – change on a per-prospect basis.
If your marketing department doesn’t own pricing—or you don’t have a marketing department—there’s a temptation to have the sales leader own your pricing strategy. This is a mistake, and not because of your sales leader’s skills, but because of the incentives of your sales team.
Sales reps are incentivized to sell—that is, to bring in new customers and orders—and most sales reps have quotas they’re expected to hit. While we train them to handle objections and expect them to maintain our margins, sales reps know that customers expect discounts. In most cases, a price discount is the easiest and fastest way to assure that a deal closes smoothly, thus helping them hit quota. Even when commissions are based on margin and not on price or volume, sales reps will still lower prices to meet quota to avoid being fired.
This puts the sales leader in a precarious position. The management team expects an increase in revenue, but the sales leader knows that this will make the product harder to sell. When asked to commit to a price, the sales leader will commit to a number that is easy to sell, and will focus on making up the difference by selling more. The sales leader’s incentives aren’t aligned with a higher price.
Marketing owning the pricing conversation will pay dividends for the organization in the long run. At the end of the day, marketing will make an unbiased pricing decision that has been thoroughly researched, is set up to meet company goals, and will complement the sales team during the sales process. If you aren’t confident in your pricing strategy, let’s chat. BlueByrd can help you determine your value proposition, target markets, and give you advice on what to do next.
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