How to make your prices more flexible

Companies often struggle to maintain stable prices that their sales agents respect over time. This ideal, while desirable, proves impractical in everyday business life due to a myriad of factors, such as the buyer’s financial capacity, customer habits, competitors’ prices, cost of supply, intermediaries’ pressure, market opportunities, and even sometimes by government interventions, leading to uncertainties that its absence causes

Corroborating this statement, Philip Kotler, in his renowned work Marketing Management, warned that “companies usually do not set a single price but rather develop a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchase timing, order levels, delivery frequency, guarantees, service contracts, and other factors.”.

Given the wide range of factors influencing prices, it becomes crucial for a supplier to establish a robust policy of price flexibility. This policy will serves as a guiding light for its operators, ensuring that pricing decisions are strategic and suited.

Among the leading alternatives for making prices more flexible stand out: (a) fixed price, (b) price band, (c) price with probation, (d) price by authority, and (e) budgeted price, each with its possible range of values, as explained below.

1. Fixed price

In the fixed price option, the sale price, the discount granted, and the payment term are previously defined and valid for a certain period based on the product profile, the customer, the transaction, or any other relevant sales parameter.

1. Price band

The price band modality imposes pre-established price limits for each type of operation. This feature allows the sales agent or pricing software to define the price, as long as the price charged is between the upper limit (highest price) and the lower limit (lowest price) authorized for a given type of transaction, type of customer, or sales object.

1. Price with probation

The price, discount, and payment terms are delegated to the sales agent in this regime. For security reasons, these transactions are monitored to prevent the recurrence of decisions that lead to deviation from the pre-established periodic targets.

1. Price by authority

In this alternative, the decision on price and other conditions depends on the range of competence of the member of the price decision-making chain and whose authority is usually determined by their company hierarchical level.

1. Budgeted price

The budgeted price is freely chosen by the offerer and used for customized orders or in atypical supply and demand conditions. Therefore, resulting from the respective customizations and market conditions.

Furthermore, it is worth remembering that most companies prefer a mixed system in which more than one single pricing modality is used simultaneously.

C. L. Eckhard, author of Pricing in Agribusiness: setting and managing prices for better sales margins.