Companies Must Learn to Achieve the Price Advantage (or Pay the Price) (page 6 of 6)

These products let companies that either sell online or sell through call centers on a real-time basis test price levels. If you are a computer company selling personal computers online, for every 20th PC that you sell in a certain class you might bump the price up 3% or bump it down 5% when you quote it. If you do this on a regular basis, if you have enough of a high-volume transaction stream, you can get a sense, with this real-time testing, how sensitivity to price is changing over time.

Reibstein: I'm a big believer in that.

Marn: That's some of the most exciting software that's come out in recent years, and I think companies are just beginning now to reap the benefit of that real-time understanding. The idea is that you always have a price test going on. You always have your thumb on the pulse of how price sensitivity is changing for products all the time.

Reibstein: Mike, is there something I haven't asked you yet that you'd like to mention?

Marn: I'd like to say that all too many well-intentioned companies approach price improvement as a project, as something you can knock off in six months or a year and then go on to the next thing you need to fix. When you look at companies that have really created the price advantage, it's not that way at all. This is at least a medium- to long-term journey. To get it right in most companies, you have to potentially touch hundreds, even thousands, of people. You have to change their day-to-day behavior, change the tools they use, change the way they think about price versus volume versus market share. It's more work than you think. It's a larger investment than you think. But the good news is that it's worth it.

We've seen clients that have stuck with this over the years and they keep accumulating benefits over time, in terms of stretching out their margins on a year-over-year basis. But there's almost a change in the feel of the culture of the company. If you go into a company that has created the price advantage, you see a couple of things. You see people who really are customer focused. They understand that they can't create the price advantage unless they create value for their customers. And, you see workers at all levels who understand, 'If I work hard to create an advantage for my customer or an advantage for my company, I know we're going to get a payoff for it. My hard work at a company where the price advantage exists always has a payoff. It's not going to be given away to the market. It's not going to be frittered away in a temporary volume increase.' There's a certain spirit in companies that achieve the price advantage. It's a long-term cultural change.