A sales oriented pricing objective uses pricing to facilitate sales and market share growth. The goal is to use pricing as a tool to help drive “smart growth”. Thus, companies using this strategy will discount prices where it is likely to create growth. However, sales oriented doesn’t necessarily mean sales driven: they will likely stand firm on price elsewhere.
While margin improvement is a common pricing goal, there are certain situations where a sales oriented approach makes a lot of sense. We are going to explore a few of these.
Pending Merger or Acquisition
If the company is close to being sold or merged with another business, volume may be crucial. Sales growth looks good at the deal table. Along the same lines, management doesn’t want to annoy any customers at this crucial time. The pricing team is often told to take it easy.
One thing to check closely if you are the acquiring company: terms and conditions of deals. The prior management team may have traded short term rebates and upfront payments (which affect the purchase price) for more lenient terms on the back end of the deal. These can be hard to analyze, such as price increase policies and contingent fees.
An Empty Factory / High Fixed Cost Business
I have been told to fill up a plant before. A large customer left the business and the fixed cost was slowly eating us alive. To fix this problem, we aggressively bid on new business.
While the price of this new business was not attractive, it stopped the bleeding. The trick, of course, is to keep looking for good long term business.
This is an example of where a sales oriented pricing strategy is essential to survival.
If you have the balance sheet to support it, an industry shakeout is a great time to play offense. Remember to value the customer based on who they could be – rather than who they are.
This is common in technology, during product cycle transitions. You want to grab and hold the installed base so you can sell them the new product.
The same applied to new innovations. If you know there are a handful of key customers who will set the direction of the industry, you need to win those accounts at all costs.
You make your profit in the future, as your margins rise over time.
Kingmaker Accounts / Customer Segments
If you know that a particular customer segment will set the standard for everyone else, they become a high priority target. A sales oriented pricing strategy would be appropriate.
You see this in technology and consumer goods. If you know that winning the teenagers will get you their families, you bid hard for that business. The same applies in certain distribution markets, where a key retailer or cash and carry sets the tone for the city.