Pricing’s most common (and most painful) mistakes

Just like pricing and inventory management can generate a positive impact of incremental millions of dollars, it can also create a leak of revenues of that magnitude. Here is my ranking of pricing’s most common mistakes by impact.

Mistake #1: Lack of prevision of the competitive dynamic

Some of the bloodiest price wars have occurred due to the lack of management of what Nash would call “game theory.” An emblematic example of this in recent years is what happened in the Peruvian telecommunications market (which will be the subject of one of my following posts): Raise its hand the one that has not taken advantage of this price war by lowering its plan cost or buying a phone for virtually nothing! It is critically essential always to remember who my competitor is and how it will react to my action because I can end up shooting myself in the foot.

Mistake #2: Insufficient “time to market”

In a market so dynamic as the current one, responding fast to the actions of competitors is not only necessary not to lose sales but also to leave a clear message to your competitor: “I am watching you” and to your client: “You don’t need to compare since I will always have a competitive price.” Those who underappreciate the effect of having a fast response time meet sooner than later death.

Mistake #3: Looking to self

Business arrogance is one of the leading causes of failure. Naive are those who think they can develop a pricing strategy without considering their competition. Pricing positioning is what follows the product positioning: if my product is better, then I can charge more than the other and vice versa unless there is demand in excess, and in that case, I can wait until my competitor ends selling all its stock and after that, I can sell mine at higher prices, regardless of the relative value of my product. 

Mistake #4: Lack of peak season planning

History repeats more than one wishes to see. Hence, the off-season begins – bad results – prices are lowered – results slightly improve – peak season begins – great results in volume at a low price (because the off-season strategy was kept) – prices rise – off-season begins – bad results, and it repeats. What’s the problem? Price increases should be done before peak seasons start, not when one has already sold at a lower price during peak season and learned that it left money over the table. That lost money has already been diluted. Please do not believe that what you lost in peak season can be recovered at the end of it—big mistake.

Mistake #5: Open price deals

One of Revenue Management’s main fronts of value is segmentation. If you ask why your price deals are not adding value to your revenue and you end up with more quantity and less average price, then start by checking if your price deals are being correctly segmented (I bet that they are open to any date and any client). The base of a reasonable price deal initiative is to segment correctly to dilute as little as possible (a client paying less than what it is willing to pay).

Mistake #6: Not measuring results

If you will take price actions and not measure them, then I say it is better not to make them. In my experience 80% of original price initiatives need some adjustment to provide the expected results. The one-million-dollar question is: How can you adjust your price strategy if you do not measure its effects and do not know what worked and what did not? One of the most important exercises of Revenue management is test-error-adjustment. Continuous learning for adjusting the strategy is the key to good revenue management.

Mistake #7: Generating strategies only for the target audience

Few businesses can exploit their rentability by only addressing their target audiences. Most companies are affected by the seasonality of their target audience, and the only way to face it is to develop new market segments. Be careful of assuming that you will be able to create all of these other client segments with the same product and price strategy… the more you put yourself in their shoes and generate the right design for them, the better you will do.

Mistake #8: Checkout dilution

Here is an example of the “Checkout dilution phenomenon”: last Saturday, my sister went to the supermarket, and while walking, she decided to buy her dog a toy. She took it from the shelf and saw its price was US$8, and when she arrived at the checkout, she was told the article was on sale for US$3. For the company, this is the same as receiving the additional $5 and throwing them away. The price deal had zero incentive impact because no one found out about it since the particular offer label was not placed. Yet, there was 100% dilution because my sister was willing to pay the original price and spent the one with the discount.

About the author

With over 16 years of leadership experience driving strategic growth, pricing innovation, and transformational change across multiple industries, Daniela León is driven to contribute to the Community by sharing her experience through this blog. 

Her passion for data-driven insights and cross-functional collaboration, positions her to deliver valuable insights for business transformation.