Are you chasing market share? Are you solely focused on increasing sales volume? These sound like reasonable and healthy goals to improve our organizations, right? According to Hermann Simon, world renowned author and thought leader, your focus is actually in the wrong place…

Simon enlightens us through his course (available on the Growth Institute, an executive training platform) titled How to Boost Profit and Growth through Pricing. And let’s face it…there’s nothing more relevant to STRATEGY than focusing on profit and growth. To achieve this, we must focus on value and profit, not on market share or volume alone. If we were to focus only on maximizing volume or market share the optimal price would be zero! This clearly reveals a problem…

We know we can’t just focus on one metric in isolation. When we take a value focus, we give ourselves pricing power. How’s that for a bulletproof STRATEGY? This is just one of the 8 lessons that Simon offers during his talk.

Let’s look at all 8 lessons and learn how we can all improve our growth potential.

Lesson 1: Combine price and volume

Price is much more sensitive to profit than volume so it’s better to grow through price increases than volume increases. Obviously, it is much better if we can do both, but try introducing a nonlinear pricing system (e.g. charging more for the first visit) to combine the effects of pricing and volume. This can help offset potential volume decreases from charging a higher price.

Lesson 2: Margin x volume growth

Margin x volume growth = Profit, which is what ultimately counts. Ask yourself, are you truly profit oriented? When it comes to cutting prices and reducing your margin, be very cautious. Simon suggests making it a rule to come up with at least three measures apart from price decreases before resorting to cutting your price.

Lesson 3: Manage for profit, not for volume or market share

We touched on this in the beginning, but it bears repeating. Profit is the cost of survival! In many organizations, this may call for a strategy change among your leadership team.

Lesson 4: Creating Enterprise Value (EV) is the ultimate responsibility of the CEO

CEOs must understand the role of enterprise value. Price can enhance or destroy EV, which is why it’s particularly important to carefully consider other options before implementing a price decrease. Remind yourself: EV is where my focus should be!

Lesson 5: Deliver value and make sure to fully capture this value

Once the value has been created and prioritized, it’s time to deliver. Value is what gives our pricing its power. We are willing to pay the price for something we value. Be clear on your value proposition.

Lesson 6: Extract value through new pricing and monetization models

Simon discusses the concept of moving from “rectangle pricing” to “triangle pricing” to capture more profit. The idea is that by implementing a nonuniform pricing structure with multiple price points we can capture “passed up profit” and “money left on the table”(see graphic) so our overall profit potential goes from the small rectangle to the larger triangle.

Lesson 7: Avoid price wars

Enter a price war only if you have sustainably lower costs and greater financial strength. Price leadership is the most effective way to prevent or end price wars. In fact, as the market leader, it is your responsibility to help move the price upwards.

Lesson 8: Pricing transparency and the digital age

With the internet, consumers can easily compare prices. They can also impact consumer perception of our price/value through customer feedback platforms. This can make it challenging to manage, but that is the way of the world these days. Think creatively on how you can make this “threat” an advantage.

To summarize, the best strategy for financial strength and longevity is a focus on profit. This might seem straightforward, but sometimes there’s so much noise/metrics and we get lost. We lose sight of our North Star.

So, let’s get back on track, find our way, and capture our focus on profit.

Protect your price. Focus on profits. I want you all to soar through the rest of 2023!