How Your Business can Benefit from Pricing Audits
Auditing is an important part of keeping your business in check and gives companies the opportunity to maximize sales. However, many companies limit their auditing process to aspects of their business like inventory. The truth is, nearly all companies stand to benefit from auditing their pricing process as well, and few ever manage to do so. In this article, we will go over the benefits of price auditing, the risks of going without it, and how to prepare for a price audit.
Price audits are a process that evaluates your company's pricing strategy. They help ensure that prices offered are in-line with the consumer’s willingness to pay for a given product as well as typical market values for a product. Price auditing is therefore typically conducted by analyzing cost to serve, sales processes, promotions, customer value, and market positioning.
The importance of price audits cannot be understated. Without regular auditing, you run the risk of several missteps within your pricing strategy. Worse yet, you won’t even be aware of any of these pitfalls within your process — You cannot fix problems that you aren’t aware of. Whether it’s too many discounted items or improperly priced items, not autiding your pricing strategy regularly could likely cost you sales and revenue. Additionally, without the analyses involved with auditing, your company is essentially pricing products blindly with no regard to your competition or the market as a whole.
Benefits of pricing audits to your pricing strategy
Price auditing has great potential to strengthen your pricing process and increase your sales. By finding potential flaws within your current strategy, auditing can help your business maintain consistency. Maintaining consistency in regards to products in turn helps uphold your brand image, and prevents potential mistakes like over-discounting items in an attempt to remain competitive. Through a price audit, you can also discover other potential weaknesses of your pricing strategy. For example, you could be over-valuing certain products, decreasing their sales in the process, or perhaps your company struggles to accurately price new products upon their debut. In addition to finding weaknesses, you can also identify the strengths of your pricing strategy, and measure them accordingly.
Lastly, price auditing helps your company to understand your data quality. The numerous analyses involved in auditing requires a lot of historical sales and pricing data. Going through all of this data can give you a good idea about how well this information has been collected and monitored within your company over time. As a result, you can improve the way you handle your data for future use.
How to prepare for a price audit
Now that we have gone over the benefits of price auditing, let’s talk about how you can prepare your company for a sufficient price audit. Price auditing occurs within three basic stages:
1) Define strategy and goals. It is important to have a concise and clear understanding of your pricing strategy, and make sure that your existing strategy is in-line with your business objectives. Your company as a whole should be working towards a clear goal such as increasing your market share, increasing sales, or some other measurable objective, which is also the framework with which you create your pricing process.
2) Review data to understand current practices. Interview different teams to assess which teams are impacting and are impacted the most by your pricing strategy. Review their current practices (e.g. discount offers, benchmarking against competition, etc.) to obtain a better understanding of how your company is conducting your pricing.
3) Identify areas of improvement. With a solid overview of your company’s current strategy, the goals you are working towards, and the segments of your business which impact your pricing process, you can begin to find aspects of your current strategy that might need changing. Perhaps you have identified practices that don’t align with your objectives, such as offering too many discounts when you are seeking to increase your revenue. Now is your chance to re-align your pricing process and unify your teams towards your now clearly defined goals. This step is also a good opportunity to find ways to improve future price audits through better data collection and analysis.
These stages can be done either by members of your own pricing teams, or by external pricing expert consultants. Alternatively, advanced pricing platforms such as the one we provide at Competera can also collect, analyze, and present all the data you need to conduct a pricing audit according to your goals and restraints. In the latter case of using an advanced software, all that would be left for your team to do is to define your strategy, and take action on the areas of improvement the software identifies.
Conducting a pricing audit may sound like a daunting task at first. In reality, price auditing can be a fairly straightforward task, and going without it means that you could be blind to several flaws within your current system. By following the three steps we covered, your company can improve your pricing process, your method of data collection and analysis, obtain a clear understanding of your objectives, and take action against previously unseen flaws within your strategy. Suspecting and knowing are not the same, and price auditing is your method of knowing exactly how your company is enacting your pricing strategy.