As consumers, discounts can seem like an attractive thing. But as business owners, discounting practices can be damaging to your profits in the long run. More than just hurting price perceptions, customers may end up engaging with unauthorized resellers. This can end up with customers being scammed by cheap knock-offs and could ruin your reputation. In this article, we’ll be discussing the importance of pricing policy in controlling situations that could be harmful to your brand. 

 

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Importance of Pricing Policy Against Discounting Practices

 

E-commerce has been a largely beneficial tool for businesses. However, there are some downsides. Markets become flooded with competition and alternatives. Customers now have access to a whole range of products. Unfortunately, that includes grey market sellers that may claim to sell your products at much lower prices. 

 

The struggle then comes when you are forced to try to compete with these resellers’ prices. In an effort to remain competitive, many businesses decide to slash services and other value-adding activities in order to lower margins. By doing so, businesses may remove crucial aspects that set them apart from the rest. 

 

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Bad Discounting Practices

 

Part of the trouble comes when businesses decide to discount too much or too often. This makes discounting practices expected. Why is this bad? It’s because it erodes customer price perception and loyalty. Why would they pay full price for your product when they know it won’t be long before another sale?

 

Because customers become accustomed to discounts, they are also more susceptible to unauthorised sellers offering extensive discounts. They are less able to decipher or give importance to buying your products from legitimate suppliers. 

 

As a result, businesses are often forced to try to keep up with these prices. They do so by engaging in damaging moves just to be able to drop margins. 

 

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Good Pricing Policies

 

It doesn’t always have to end up this way. Brands that are able to enforce good pricing policies can maintain their image and reputability. Some good examples include Apple, Samsung, or Bose. 

 

The key points of their practices include minimum resale prices and minimum advertised prices. This keeps their price ranges within narrow ranges. Any promos or discounts are minimal, so customers are trained to expect to pay full price most of the time. 

 

This protects brands from a range of problems. Agreeing on minimum selling or promotional prices sets a floor for resellers, eliminating the risk that your customers will flock towards ridiculously cheap knock-offs. This also sets a legal boundary. Resellers can price how they wish, so long as they don’t go below the minimum. Otherwise, they may be subject to face legal consequences. 

 

Effectively Implementing Pricing Practices

 

Good pricing policies won’t have much effect unless they are implemented properly. Oftentimes, businesses do have the right practices in place but they don’t get the results they expect. Below are three checkpoints you should tick off to ensure your pricing policies are well planned, ironed out, executed properly, and maintained:

 

 

Strategic Planning

 

The first step is to plan strategically. This may seem like a no-brainer but many businesses fail to create a comprehensive plan that includes long-term objectives. Company goals must preserve brand equity and maintain a wide variety of resellers. Stakeholders must be on the same page as well. 

 

It’s important to have objectives or targets that centre your brand for the long term. There may be situations where actions that lead to short-term revenue may seem attractive. However, these could actually be hurting your business in the long run. 

 

Likewise, your plan needs to be based on actions that promote the value of your product. Unfortunately, in doing so, your brand may be more susceptible to grey market resellers and knock-offs. To combat this, you must implement strong policies that can protect you against these situations. 

 

Creating Your Policy

 

The next step after laying out the groundwork of your plan is to build a policy that can support your brand. For this, it is recommended that you enlist legal expertise. Doing so will enable you to build a strong pricing policy that will allow you to keep control of your business and image. 

 

The best pricing policies include clear instructions for what your brand allows in terms of any reselling, as well as minimum retail prices and minimum advertising prices. Make sure that consequences for any violations are clearly outlined, as well as your plans to enforce them. 

 

Likewise, include any rules you may need around coupons, promos, or bundles. That’s right, you’ll want as much detail laid out as possible during this process. Though it may be a lot of work, it will save you time and many headaches later on. Make sure to use firm and strong language, but also allow for flexibility when needed. 

 

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Executing Your Strategy

 

Once you’ve got your plan and policies outlines, you’re ready to start building on your foundation. Executing your strategy should come relatively seamlessly if you have done the first two steps properly. 

 

The hallmark of a successful and well-functioning business is its ability to carry out plans cleanly and without risk. If you find yourself struggling to do so, it may benefit you to hire a policy administrator and pricing team. 

 

These people can be invaluable to your company, especially if you don’t have the skills in your workforce to handle tasks that require such specialized skills. A policy administrator can help you go over deals and act as support for communication or sales. They can guide and enforce policies and interpret contracts so that you don’t get blindsided and end up in difficult situations. 

 

Pricing teams, on the other hand, can help you craft price points and margins for promos that don’t damage your brand. Moreover, these professionals can help you maintain your policies through constant monitoring and enforcement. Policies can only do so much in the long run if no one is there to constantly back it up. 

 

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Bottomline – Importance of Pricing Policy

 

In conclusion, the importance of pricing policy lies in you being able to maintain and control your brand and customer price perception. These things come from proper enforcement of the policy, staying clear of bad discounting practices, and hiring people with the specialised expertise you need to manage your strategies. As a result, your brand should run smoothly and have full control over the market value of your products and the price points of resellers. 

 

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Are you a business in need of help to align your pricing strategy, people, and operations to deliver an immediate impact on profit?

If so, please call (+61) 2 9000 1115.

You can also email us at team@taylorwells.com.au if you have any further questions.

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