For CEOs, understanding costs accurately, setting competitive product prices and maintaining (or improving) profitability is never easy. Several factors impact pricing, and CEOs must stay ahead of these factors to make the right data-driven decisions.

The Challenges that Make Pricing Difficult

Getting pricing right is one of the most challenging tasks for CEOs because it requires a nuanced understanding of internal operations and external market forces. Here’s a breakdown of the key reasons why pricing strategy can be so tricky:

• Customer Perception: CEOs face many challenges in reading the market pulse and gauging the customer’s reaction to the pricing point. With information from multiple internal departments and the external business environment lying in silos, CEOs have a tough time making decisions that boost market perception and competitive positioning.
• Revenue and Cost Drivers: A poor understanding of revenue and cost drivers makes quoting for new product development (NPD) or submitting RFQs difficult. If CEOs set prices too high, they risk losing customers to competitors. On the other hand, if they set them too low, they risk profit margins and brand perception. CEOs must constantly monitor competitors and customer sentiment, which are always evolving.
• VUCA: Today’s CEOs operate in a highly volatile business environment, which makes handling VUCA (volatility, uncertainty, complexity, and ambiguity) a common challenge. Making pricing decisions while generating capacity-sensitive, driver-based, rolling financial data is challenging.
• Cost Variability: Costs fluctuate due to several factors, such as supply chain disruptions, labor costs, or currency exchange rates. However, not all CEOs have the tools to keep track of everyday price changes, perform cost-related operations, or balance fluctuations against desired profitability margins, especially in volatile markets.
• Market Volatility: Economic factors such as inflation, interest rates, and consumer confidence can shift rapidly, affecting customers’ willingness to pay. CEOs must anticipate these factors and embrace dynamic pricing strategies, which can be resource-intensive and complicated to build.

What CEOs Can Do to Get Pricing Right

Tracking daily price fluctuations and maintaining cost control is vital for growth but demands proactive management and adjustment. If CEOs want to quote accurately for new products based on cost structure, market demand, and competitive factors, they must be able to read the market pulse, predict customer reactions, and precisely gauge market trends and dynamics.

Digital activity-based costing solutions can help CEOs get a deep understanding of costing.

• These solutions integrate critical costing information from various internal sources enabling them to make pricing decisions that align with brand identity and customer expectations.
• Access to granular costing data further helps in precisely forecasting demand elasticity, allowing CEOs to achieve real-time accuracy in pricing decisions while balancing short- and long-term goals.
• CEOs can use these tools to set and compare product prices, analyze price changes, and develop an appropriate product pricing strategy. They can also calculate, manage, and handle price or cost-related operations and make informed product pricing decisions.

Understanding the Benefits of an Pricing Tool

Best-in-class pricing solutions like PRICING~Pro simplify pricing operations and deliver the best business outcome in terms of revenue, especially in new product development. CEOs can make the right pricing decisions by staying ahead of various price points such as hourly rates, interest rates, margins, discounts, currency exchange rates, etc. That said, let’s look at the top benefits of pricing tools like PRICING~Pro:

• Seamless pricing management: pricing tools allow CEOs to seamlessly manage the entire quoting process, including multiple rounds of price revisions and adjustments. This helps them stay responsive to customer feedback or changing cost conditions without disrupting workflows, reduce the time spent on administrative tasks, and focus on optimizing offers.
• Data-driven decisions: With access to accurate, real-time data, pricing tools allow CEOs to make informed decisions during pricing negotiations. Since these decisions are based on reliable data points, such as market trends, and internal cost structures, they enable CEOs to secure better terms and maintain customer credibility.
• Reliable quoting: pricing tools enable CEOs to foster customer trust by instituting a transparent and consistent quoting process. Using a structured approach to pricing ensures that quotes are based on standardized data, reducing the likelihood of errors or discrepancies, enhancing brand reputation, and assuring customers that quoted prices are fair and reflect actual value.
• Profitability insights: ABC tools help businesses identify the prices at which orders are profitable by analyzing historical and real-time pricing data. This enables strategic pricing decisions, allowing CEOs to set minimum acceptable price points that ensure profitability, support long-term financial growth, and avoid under-pricing or over-discounting offerings.
• Real-time tracking: pricing tools also allow CEOs to track historical data to detect patterns while monitoring current changes to make real-time price adjustments. This improves the accuracy of forecasting future pricing strategies, enabling companies to adapt to market fluctuations quickly.
• Reduced turnaround time: Embracing the right pricing tools can also enable CEOs to reduce the time needed to respond to RFQs. With quick access to relevant data, companies can craft accurate, competitive quotes faster, improving their chances of winning bids and meeting customer demands swiftly.

As CEOs navigate market trends, economic fluctuations, and customer needs, activity-based costing tools are critical in adapting to an evolving environment. Using robust pricing software, businesses can conduct accurate contribution, cost, and profitability analysis, get a glimpse of the potential impact of change in process parameters, material prices, and exchange rate fluctuations, and understand factors that contribute towards the long-term growth and profitability of the business.

Explore how Pro~Active Solutech can enable best-in-class pricing for your unique business needs.